Asia: Stocks rebound as Fed day arrives while oil resumes losses

[WELLINGTON] Asian equities joined a global rebound as the Federal Reserve's decision approached, while the dollar weakened against most major currencies and oil resumed declines.

The region's stocks rallied from their lowest level since the start of October, with Hong Kong's Hang Seng Index climbing 2 per cent to snap its longest losing streak since 1984. The greenback slipped versus the Korean won and euro amid concern the currency's climb in the run-up to the rate decision leaves it vulnerable to a short-term pullback. Crude slid 1.3 per cent, and bonds from Japan to Australia retreated.

"Markets had time to prepare for this day, with investors winding back risk ahead of the event," Tim Schroeders, a portfolio manager who helps oversee about US$1 billion in equities at Pengana Capital in Melbourne, said by phone.

"What happens after the Fed rate hike is difficult to tell especially since we're coming into a quiet period around Christmas and New Year. Volatility will probably continue." Investors are heading into Fed decision day on a more positive note, after oil came back from a six-year low and the rout in high-risk debt took a breather. Traders and economists expect the US central bank will boost key rates Wednesday, while indicating that any subsequent hikes will be gradual as long as economic growth remains steady.

The MSCI Asia Pacific Index climbed 1.9 per cent as of 11:02 am Tokyo time, with Japan's Topix index up 2.2 per cent from an eight-week low.

Australia's S&P/ASX 200 Index jumped 2.1 per cent, rising for the first time since Dec 7 amid gains in energy and mining shares. The Kospi index in Seoul rallied 1.5 per cent, while Hong Kong's Hang Seng Index advanced the most in a month after a nine-day, 5.4 per cent drop.

Futures on the Standard & Poor's 500 Index added 0.1 per cent after the measure gained 1.1 per cent on Tuesday.

Investors are about to find out how much equities are worth in the absence of Fed support. Cheap money has fueled a bull market in US shares, helping stocks recover from the global financial crisis and restoring US$15 trillion to market values since 2009.

The Bloomberg Dollar Spot Index, a gauge of the US currency against 10 major peers, fell 0.1 per cent on Wednesday after a four-day advance. It's climbed more than 8 per cent this year as anticipation of tighter Fed policy fueled gains.

"The FOMC meeting could cause some fireworks," Jason Wong, a currency strategist in Wellington at Bank of New Zealand, said in an e-mail to clients, referring to the Federal Open Market Committee. "This has been one of the most anticipated Fed meetings in modern history, but some trading volatility could still be expected as market participants interpret and misinterpret the FOMC language." The euro gained 0.1 per cent to US$1.0940 following Tuesday's 0.6 per cent drop, while the yen traded at 121.66 per dollar after falling 0.5 per cent last session. The won strengthened 0.2 per cent as traders judged its recent declines to be excessive.

Thailand also decides on rates Wednesday, and is expected to keep its benchmark rate on hold at 1.5 per cent. The baht was down 0.2 per cent to 35.974 a dollar, slipping for the seventh time in eight sessions.

Government debt across Asia retreated after Treasuries extended losses in Tuesday trade as data indicated the US saw faster core inflation last month.

Yields on Australian notes due in a decade climbed by five basis points, or 0.05 percentage point, to 2.87 per cent, as rates on similar maturity debt out of New Zealand rose by four basis points. Japanese 10-year bonds fell for the first time this week, with yields up one basis point to 0.31 per cent.

Ten-year Treasury yields slipped one basis point to 2.26 per cent after surging 14 basis points the past two days.

West Texas Intermediate fell amid speculation Iran is moving closer to boosting crude exports after United Nations monitors ended a probe of the Islamic Republic's research into atomic-weapon technologies. Crude slipped 1.3 per cent to US$36.87 a barrel after rallying almost 5 per cent the past two sessions.

US oil inventories increased by 2.3 million barrels through Dec 11, the American Petroleum Institute was said to have said. Energy Information Administration data Wednesday will probably show supplies contracted by 1.5 million barrels for the second weekly decrease, according to a Bloomberg survey on energy analysts.

Copper advanced for the first time this week, adding 0.4 per cent in London as nickel jumped 1.5 per cent and aluminum climbed 0.5 per cent with zinc.

Gold for immediate delivery gained 0.3 per cent to US$1,064.60 an ounce.

BLOOMBERG