[WELLINGTON] A global stocks rally gathered momentum in Asia and South Korea's won strengthened as a surge in Japanese machinery orders buoyed risk appetite before central banks in two of the world's three biggest economies review policy this week.

The MSCI Asia Pacific Index climbed to a two-month high, led by banking shares, after the Standard & Poor's 500 Index erased its loss for the year on Friday. Japan's Topix index rose to a five-week high. The won rose to its strongest level of 2016 versus the dollar, while gold rebounded from a one-week low. Copper fluctuated after Chinese economic data added to signs of a slowdown in the world's most-populous nation.

US crude oil retreated from a three-month high as Iran reiterated plans to boost output.

Central banks are being relied on to revive the global economy after a worsening growth outlook wiped almost US$9 trillion off the value of equities worldwide this year through mid-February. The bulk of the stock-market losses have been clawed back, helped by monetary easing in China and last week's announcement of unprecedented stimulus by the European Central Bank. The Bank of Japan will conclude a policy review on Tuesday and a Federal Reserve meeting ends Wednesday.

"Central banks are going to be dominating market sentiment," Matthew Sherwood, head of investment strategy at Perpetual Ltd in Sydney, which manages about US$21 billion, told Bloomberg Radio. "That could be enough for the risk rally to continue, but I think it is starting to run out of steam. The Fed is going to be front and centre" this week, he said.

Japan's central bank will keep the annual expansion of the monetary base at 80 trillion yen (S$963.7 billion), according to 35 of 40 economists surveyed by Bloomberg. All but two predict the policy rate will remain at minus 0.1 per cent.

Fed funds futures indicate there's only a 4 per cent chance the Fed will hike borrowing costs this week, down from 12 per cent at the start of this month. In China, central bank Governor Zhou Xiaochuan said "excessive" stimulus wouldn't be required to achieve the nation's economic growth goal of at least 6.5 per cent over the next five years.

STOCKS

The MSCI Asia Pacific Index climbed 1.2 per cent as of 11.35am Tokyo time, set for its highest close since Jan 5.

Japan's Topix added 1.8 per cent, the Shanghai Composite Index rallied 2.1 per cent and Hong Kong's Hang Seng Index gained 1.2 per cent. Japan's core machine ordersjumped 15 per cent in January from a month earlier, beating December's 4.2 per cent increase and higher than economist forecasts for a 1.9 per cent gain.

"The machine orders results should be a boost to stocks," said Masaaki Yamaguchi, a Tokyo-based equity market strategist at Nomura Holdings Inc. "It's not just this one indicator that's moving the market, but globally we're moving toward a more risk- on stance."

Futures on the S&P 500 Index fell 0.1 per cent early Monday, after the benchmark surged 1.6 per cent on Friday to cap a fourth straight weekly advance.

Currencies The won strengthened as much as 0.6 per cent to 1,186.43 a dollar. The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed Monday after three days of declines.

Commodities In the oil market, West Texas Intermediate crude futures declined 0.4 per cent to US$38.35 a barrel following four straight weeks of gains. Iran plans to boost output to 4 million barrels a day before it will consider joining other suppliers in seeking ways to rebalance the global crude market, Oil Minister Bijan Zanganeh said, according to the Iranian Students News Agency.

Gold gained 0.5 per cent to US$1,255.14 an ounce, after sliding 1.8 per cent on Friday as investors shunned haven assets.

Bonds The cost of insuring Asian corporate and sovereign bonds against default fell four basis points to 135 basis points, according to prices from Nomura Holdings Inc. The benchmark is set for the lowest close in more than two months, CMA data show.

BLOOMBERG