Draghi warms risk appetite, shares rally

2012-07-27 08:15

Tokyo - Asian shares rallied on Friday, led higher by a strong result from smartphone giant Samsung Electronics, after the European Central Bank rejuvenated risk appetite and steadied the euro by signalling its resolve to defend the eurozone.

European stocks look set to extend gains, with US stock futures signalling a firm start on Wall Street. Financial spreadbetters called the main indexes in London, Paris and Frankfurt to open up as much as 0.4%.

Markets rose sharply after ECB President Mario Draghi said on Thursday the bank would do whatever was necessary to protect the eurozone from collapse, raising expectations it will move quickly to tackle skyrocketing borrowing costs in countries like Spain.

Analysts said Draghi's comments, coming ahead of the bank's policy-setting meeting next week, could signal a resumption of the ECB's sovereign bond-buying scheme known as the Securities Markets Programme which has not been used for months.

"This would prove a welcome relief for struggling economies and their borrowing costs," said Andrew Taylor, market strategist at GFT.

MSCI's broadest index of Asia-Pacific shares outside Japan climbed 1.8%, pulled higher by a 3.6% gain in the technology sector. At current levels, the index was on track for its biggest daily rise in a month, but still set for a small weekly drop.

Korean shares outperformed their Asian peers to jump more than 2% to a one-week high after Samsung Electronics, the world's top technology firm by revenue, posted a record profit for the June quarter, pushing its shares up nearly 5%. Screenmaker LG Display rose 7% after beating earnings expectations.

Japan's Nikkei stock average gained 1%, as speculators bought back battered cyclical stocks.

The euro traded at $1.2288, off a two-week high of $1.2330 touched on Thursday after Draghi's comments but well above a 25-month low of $1.2042 hit earlier in the week. Against the yen, the euro was at ¥96.10, well above ¥94.12 touched on Tuesday, its weakest since November 2000.

"Expectations have heightened after Draghi's remarks for the ECB to do something next week, along with an expected rate cut," said Yuji Saito, director of foreign exchange at Credit Agricole Bank in Tokyo.

"The euro, for now, is spared from being tested lower, with the US also coming under pressure to do something to support its growth," he said.

The euro's recovery from lows against the dollar underpinned dollar-denominated commodities such as oil, copper and gold.

US GDP eyed

The euro was further supported by expectations that the US Federal Reserve could offer some additional stimulus at its policy meeting next week to ensure a delicate US recovery remains on track.

"The Fed stands very little chance of achieving its goals on employment without further stimulus," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co In New York.

Investors were waiting for US gross domestic product data, due out later on Friday. The economy likely grew at a 1.5% annual rate in the second quarter, putting it on track for the slowest growth since the second quarter of 2011.

The euro's upside, however, will be capped due to uncertainty surrounding Greece's restructuring efforts as its global lenders scrutinise conditions for twice-bailed out Athens to keep receiving aid.

Asian credit markets firmed with risk appetite returning, narrowing the spread on the iTraxx Asia ex-Japan investment-grade index by 7 basis points.

Oil extended previous day's gains, with US crude rising 0.4% to $89.73 a barrel and Brent up 0.5% at $105.80 a barrel.