Asia: Stocks rally as US dollar dominates yen with crude above US$41

[WELLINGTON] Japan drove gains in Asian equities amid optimism that the volatility that marked trading at the start of the year has abated. The prospect of a US interest-rate hike as soon as April supported the dollar, while bonds in the region declined.

Tokyo's Topix index jumped the most in almost three weeks as trade resumed following a holiday, with the yen extending its drop against the greenback into a third day. The US dollar also gained against Singapore's currency and the Malaysian ringgit, even as US crude oil continued its climb above US$41 a barrel.

Yields on 10-year government bonds from Australia to Japan rose amid a decline in Treasuries after two Federal Reserve officials floated the possibility of a rate increase next month. Copper futures fell 0.2 per cent.

A recovery in crude oil prices and the willingness of central banks to support global growth has calmed markets following a volatile first six weeks of 2016, which saw US equities post the worst start to a year on record.

While price swings have eased and crude is trading more than 50 per cent above this year's low, investor confidence remains fragile with concern over China's economic slowdown and the global oil supply glut lingering. The presidents of the San Francisco and Atlanta Feds said on Monday that tighter borrowing conditions could be warranted as soon as the bank's April 26-27 meeting.

"We're at a key junction where we need to see fresh news to push the market higher," Chris Weston, chief market strategist at IG Ltd in Melbourne, said by phone.

"Central banks have put in place measures that helped subdue market volatility. However, the market is at risk of going into some sort of consolidation given the extremely low volatility."

Japan releases a gauge of manufacturing Tuesday, and the Reserve Bank of Australia's chief is expected to address recent currency strength in a speech in Sydney.

Taiwan also updates its jobless rate and Malaysia reports on foreign-currency reserves. Sri Lankan markets are closed for a holiday.

Stocks

The MSCI Asia Pacific Index climbed 0.7 per cent as of 9:38 am Tokyo time as the Topix jumped 2.2 per cent, set for its steepest one-day gain since March 2. The yen, which typically moves at odds with Japanese shares, slipped a third day, losing 0.1 per cent to 112.11 per US dollar.

"The biggest factor to move Japan's stock market is the currency right now," said Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co in Tokyo.

"It looks it's going to be a good start to the week."

Australia's S&P/ASX 200 Index swung between gains and losses, with telephone shares and health-care providers rising as mining stocks fell.

Elmer Funke Kupper, chief executive officer of Australian bourse operator ASX Ltd, stepped down Monday amid an investigation into the betting company he formerly led. ASX shares fell 0.4 per cent in a second day of declines.

The Kospi index in Seoul increased 0.1 per cent with New Zealand's S&P/NZX 50 Index, the first major stock index to start trading each day in the Asia-Pacific region.

Futures on the Dow Jones Industrial Average climbed 0.1 per cent early Tuesday, after the blue-chip equity gauge rose a seventh day, adding 0.1 per cent last session to cap its longest run of gains since October. E-mini contracts on the Standard & Poor's 500 Index were also up 0.1 per cent, following the benchmark's 0.1 per cent climb to 2,051.60.

"Markets have had a pretty tremendous month," said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. "We need to see a little bit of consolidation. Even with all that heavy lifting we've had, all it's done is gotten to flat on the year. I would expect the market's going to take a breather and it should."

In Hong Kong, contracts on the Hang Seng and Hang Seng China Enterprises indexes gained at least 0.5 per cent in most recent trading.

FTSE China A50 index futures advanced 0.2 per cent following a seventh day of gains in the Shanghai Composite Index. The Chinese benchmark rose 2.2 per cent on Monday, posting its longest rally since May and closing at its highest level since Jan 12 after officials eased curbs surrounding margin trading.

The biggest US exchange-traded fund tracking Chinese shares climbed 1.5 per cent Monday to a more than two-month high.

Currencies

With the yen retreating, the Bloomberg Dollar Spot Index looked set for a third rising day, adding 0.1 per cent following a 0.3 per cent climb last session. The gauge, which tracks the greenback against 10 major peers, slid 1.3 per cent last week after the Fed dialed back its outlook for interest-rate hikes this year, citing concerns over the global economy.

"There is sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April," Fed Bank of Atlanta President Dennis Lockhart said Monday in Savannah, Georgia.

Mr Lockhart is a policy-centrist and doesn't vote on the Fed Open Market Committee this year. His moderately upbeat assessment of the US economy was shared by San Francisco Fed chief John Williams.

Australia's dollar also headed for a third day of losses, with RBA governor Glenn Stevens to speak at a forum in Sydney Tuesday. The central bank's jawboning of the currency, or attempts to talk is weaker, have attracted criticism from the US Treasury, with the body's representative to the International Monetary Fund expressing concern over officials' attempts to influence the exchange rate through their "public statements."

Singapore's dollar lost 0.2 per cent and the ringgit weakened 0.1 per cent.

BLOOMBERG