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Recovery in world markets shifts back to Asia

[HONG KONG] Tokyo stocks led another rally across Asian markets on Tuesday as investors took up the baton from a strong Wall Street performance, with focus on Federal Reserve boss Jerome Powell's congressional debut later in the day.

Equity traders are shifting back into buying mode after the first week of February saw a plunge that wiped trillions off valuations worldwide, though analysts still warn that with prices still high volatility could still return.

Still, with concerns about rising US inflation and rising interest rates abating, stocks are back on an upward trajectory, with the S&P 500 on Monday climbing above the level it touched before the sell-off.

The gains of more than one per cent on all three main New York indexes again filtered through to Asia, with Tokyo ending the morning 1.4 per cent higher, while Hong Kong and Sydney were each up 0.6 per cent.

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Singapore rose 0.3 per cent, Seoul was 0.5 per cent higher, Taipei jumped 0.4 per cent.

"Investors appear less concerned by US rate hikes than at any point this month, which is what is providing the positive tone in global equity markets," said Stephen Innes, head of Asia-Pacific trading at Oanda.

However, Shanghai slipped 0.6 per cent, though Innes added that Xi Jinping's move to lift term limits on his presidency would be "a boon to regional economic sentiment as it guarantees continued market reforms and staying the course on the (Belt and Road) trade-and-infrastructure programme".

This week sees a number of key events, including the release of US economic growth and inflation data.

TIED HANDS

But firstly new Fed chief Powell will speak before top congressional committees on Tuesday and Thursday, with his remarks being closely analysed for clues about monetary policy.

Nerves are still raw after the recent sell-off and his views on monetary policy will be closely watched, though many are tipping him to stick to predecessor Janet Yellen's course.

"In some ways his hands are a bit tied," BNP Paribas Asset Management senior economist Steven Friedman told Bloomberg TV.

"The path of least resistance for him is to really stick to the script, which is to reiterate that there is a lot of underlying momentum in the economy, that gives them more confidence in their projections, but ultimately the path of interest rate increases is going to be gradual."

With eyes on Mr Powell, the dollar is struggling against its main peers as well as other higher-risk currencies, despite the euro coming under pressure after the head of the European Central Bank suggested he would be patient in removing crisis era stimulus.

Mario Draghi said there remained some uncertainty in the eurozone's recovery, which could hold back inflation. The comments tempered long-running speculation the ECB will tighten policy as the region's economy improves.

"For now, Draghi is a steady hand on the tiller," said Greg McKenna, chief market strategist at AxiTrader.

AFP