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Asian stocks hit 3-month highs

Sydney - Asian stocks rose to three-month highs on Tuesday in the face of fresh evidence suggesting China could be emerging from an economic slowdown while receding fears of a US military strike against Syria kept oil prices under pressure.

European stocks were seen tracking gains in Asia with financial spreadbetters expecting Germany's DAX to open up as much as 0.5%.

Russia's proposal to work with Damascus to put its chemical weapons under international control could avert planned US action. It prompted President Barack Obama to say he saw a possible breakthrough in the crisis.

Benchmark Brent oil prices fell 0.8% to $112.85 a barrel, extending Monday's 2.1% slide. US crude slipped 1.0% to $108.44.

Lower oil prices are usually a positive development for Asia, a region that relies heavily on imports for its energy needs.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.2%, extending Monday's 1.3% gain to reach highs not seen since early June.

Tokyo's Nikkei closed 1.5% higher, adding to Monday's 2.5% rally as news that Tokyo had won the right to host the 2020 Olympic Games bolstered optimism for a lasting economic recovery.

More China data

Upbeat Chinese industrial output and retail sales data on Tuesday added to growing evidence that China's economic slowdown may have bottomed out.

"China's August real activity data came in stronger than expected, which will help sustain the market rally due to improving market sentiment towards China's economy," said Li-Gang Liu, chief economist of Greater China at ANZ in Hong Kong.

A recent run of encouraging factory activity data from China, Europe and the United States suggested the global economy as a whole was on a firmer footing.

In a slight twist to this narrative, sentiment for emerging markets also found support in disappointing US jobs data for August because it raised doubts about whether the Federal Reserve can scale back stimulus in any significant way next week.

A Reuters poll on Monday showed economists generally expect the Fed to announce a reduction in its massive $85 billion monthly bond-buying programme by a very modest $10bn.

Such an outcome should be good news for emerging markets, which have suffered from an outflow of funds as investors positioned for a world with less easy money from major central banks.

The MSCI emerging equities index advanced 1.1% to three-month highs and has rallied nearly 5% in the last five trading sessions.

Still, this may only be a short-term bounce, warned Societe Generale strategist Benoit Anne.

"I don't buy the argument that the global emerging market correction is over. Outflows have been robust over the past few weeks and are showing no signs of reversal," he wrote in a report.

Dollar struggles

The disappointing US jobs data has cast a long shadow on the dollar, which was subdued after two straight days of declines. It wallowed at a 1-1/2 week low against a basket of major currencies, having fallen 1% since Friday.

Adding to the uncertainty, San Francisco Federal Reserve Bank President John Williams said on Monday he hasn't made up his mind yet over whether to support a reduction in Fed bond purchases.

The weakened dollar helped the euro recover from last week's selloff sparked by dovish comments from the European Central Bank. The common currency was steady at $1.3271, keeping close to a 1-1/2 week peak of $1.3281 scaled on Monday.

The greenback fared better against the yen, which sagged on Monday as the Nikkei rallied. The Japanese currency has tended to move inversely to the Nikkei this year.

The dollar was flat on the day at ¥99.64, but down only moderately from a pre-jobs data high of ¥100.24 set on Friday.

Analysts at BNP Paribas said it was too early to turn bearish on the dollar. "This is more of a temporary setback than a game-changer for USD bulls," they wrote in a note.

They cited Fed tapering risk, the chance of US data surprising to the upside and the possibility of Larry Summers being nominated for the Fed Chairman position as dollar-positive factors.

Summers is seen as more hawkish than Fed Vice Chair Janet Yellen, who is also in the running to be the next Fed chief.

Copper was a touch softer at $7 178.00 a tonne, having climbed from last week's trough of $7 082 on optimism about China.

Spot gold was slightly weaker on the day at $1 377.61 an ounce, still in consolidating after its late-June to late-August rebound from $1 180.71 to $1 433.31 fizzled out.


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