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Asia: Stocks edge up on optimism over global growth, US dollar soft


[TOKYO] Asian shares edged up on Monday on optimism about global growth, while the US dollar was on the defensive as a subdued US inflation outlook capped US bond yields and raised questions about the Federal Reserve's plans to tighten policy.

MSCI's broadest index of Asia-Pacific shares outside Japan ticked up 0.4 per cent while Japan's Nikkei rose 0.1 per cent. Trading was slow with many markets in the region closed for holidays to celebrate the end of Ramadan.

The prospect of solid global economic growth has kept alive investors' optimism over world equities even as some markets, including Wall Street, have slowed down from a frenetic run due to high valuations.

Share prices have also been supported by relatively loose monetary policies in the developed world, with the Bank of Japan and the European Central Bank still pumping in funds.

While the US Federal Reserve is gradually tightening its policy, investors think the pace of its tightening will be much slower than its policymakers want given subdued US inflation.

Money market futures price in only about 50 per cent chance of another rate hike by the end of the year, compared to Fed's own projection of one more rate increase.

The 10-year US Treasuries yield stood at 2.152 per cent, not far from seven-month low of 2.103 per cent hit in mid-June after data showed inflation undershot expectations for a third month in a row.

The 30-year yield hit 7-1/2-month low of 2.710 per cent on Friday, making the yield curve the flattest in almost a decade. It last stood at 2.722 per cent.

The lower yields have put the US dollar on the defensive, though some market players say both Treasury yields and the dollar could rise if US President Donald Trump manages to push through his healthcare bill in the parliament.

"There will be renewed focus on US healthcare bill. Its passage in the parliament could lead to expectations that the administration will get down to stimulus next," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Republican Senate leader Mitch McConnell has pushed for a vote on the bill before the July 4th Independence Day holiday recess that begins at the end of this week.

Yet he can afford to lose the support of only two Republicans in the face of unanimous Democratic opposition, while five Republican senators have said they will not support the bill in its current form.

The US dollar stood at 111.29 yen, off last week's high of 111.79.

The euro traded at US$1.1194, slowly recovering from its three-week low of US$1.1119 touched on Tuesday.

A strong reading in Germany's Ifo business sentiment survey due at 0800 GMT could open the way for a test of US$1.1296, its seven-month high hit earlier this month.

The euro was little damaged by the news that Italy began winding up two failed regional banks on Sunday in a deal that could cost the state up to 17 billion euros (S$26.35 billion).

"This won't cause a major financial crisis considering the current strength of the euro zone economy," said Yukio Ishizuki, senior strategist at Daiwa Securities.

Oil prices ticked up after having fallen for five weeks in a row on concerns Opec-led production cuts have failed to ease a global crude glut stemming from increased oil production in the United States.

US energy firms added 11 oil rigs in the week to June 23, bringing the total count up to 758, the most since April 2014, according to data from energy services firm Baker Hughes Inc.

Brent crude futures rose 0.5 per cent to US$45.78 per barrel from seven month lows of US$44.35 hit last week.

US West Texas Intermediate (WTI) crude futures fetched US$43.22 per barrel, up 0.5 per cent on the day and extending gains from their 10-month low of US$42.05 set on Wednesday.

"There are some support near US$40 in the WTI. People think that US shale development will stop if it falls below US$40,"said Tatsufumi Okoshi, senior economist at Nomura Securities.