Asia: Stocks climb on optimism over US economy but bets on a Fed rate hike sink bonds

[WELLINGTON] Asian stocks advanced, tracking a rebound in the US as optimism over the American economy supported the US dollar and copper rallied. Mounting bets the Federal Reserve will boost interest rates as soon as next month hit bonds, while oil was near a four-month low amid concern over supply.

The MSCI Asia Pacific Index rose 0.4 per cent by 9.28 am in Tokyo, with Japan's Topix index gaining 0.9 per cent as the yen held near a two-month low versus the greenback. Standard & Poor's 500 Index futures were little changed after a 0.3 per cent advance in the US gauge. Ten-year Australian and New Zealand bond yields jumped at least five basis points as Treasuries maintained two days of losses. Copper climbed 0.4 per cent, with oil near its lowest price since March 19.

Traders are ramping up bets the Federal Reserve will raise interest rates before the year is out, with the fastest pace of US service-sector growth in a decade rounding out the picture of an economy firmly in recovery mode. The focus now shifts to much-anticipated monthly payrolls data Friday.

"A September rate hike from the Federal Reserve seems to be the consensus among market participants," Chris Weston, chief market strategist at IG Ltd. in Melbourne, said by e-mail.

"It is now clear the Fed's tolerance of low wages has increased and we're not going to need to see a dramatic improvement in wage trends before raising the funds rate. This makes the unemployment rate data print the most important aspect in this Friday's payrolls."

Wagers on a September increase by the Fed have spiked this week, with odds climbing to 52 per cent Wednesday, from 38 per cent two days earlier. The services data added to comments on Tuesday from Fed Bank of Atlanta President Dennis Lockhart, who said he would only endorse putting off a hike next month should there be significant deterioration in economic data.

Investors appeared to shrug off a smaller-than-expected increase in private payrolls data from ADP Research Institute, with Friday's report projected to show 225,000 workers were added in July, up from 223,000 in June. Economists expect the jobless rate to hold at 5.3 per cent.

BLOOMBERG