Shares rebound on hopes for US stimulus

2012-07-26 08:24

Tokyo - Asian shares rebounded on Thursday on bargain hunting after recent sharp drops, as hopes grew for more US stimulus to support growth and new European policy measures to keep the eurozone debt woes from deepening, but sentiment remained frail.

European Central Bank Governing Council member Ewald Nowotny said there are arguments for giving Europe's permanent rescue fund a banking licence, an idea that the ECB has rejected so far. A banking licence would boost the fund's firepower by allowing it access to cheap ECB funding.

Borrowing costs in Spain, which is facing snowballing regional debts and a banking sector struggling to clean up bad loans, retreated slightly on Wednesday. Safe-haven US Treasury yields also inched up from historic lows as worries about the euro crisis eased somewhat.

Risk assets plummeted over the past week as concerns intensified that Spain, the eurozone's fourth-largest economy, might need to seek a full bailout, which would threaten to deplete Europe's rescue fund just when other highly indebted states were fighting to fend off surging borrowing costs.

"The slight pull-back in eurozone borrowing costs fed some relief, giving investors an impetus to hunt for cheapened stocks as Asian equities have been oversold in terms of valuations," said Hirokazu Yuihama, a senior strategist at Daiwa Securities.

"Caution will prevail as long as the European woes simmer and defensive sectors such as telecommunication and consumer goods will outperform growth-sensitive sectors, but Asia's relative cheapness has been widening since around May," he said.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.6%, after falling the last four sessions. The index hit a one-month low of 397.44 on Wednesday, but despite daily swings, its downside has been recovering from 2012 lows of 379.17 hit in early June.

Korean shares rose 0.5% after hitting their lows for the year on Wednesday and Shanghai shares also managed a 0.2% gain after closing at their lowest since March 2009 on Wednesday. Japan's Nikkei inched up 0.3% after touching a seven-week low on Wednesday.

Data showing new US home sales posted their biggest drop in over a year in June and prices resumed their downward trend reinforced views the US Federal Reserve would consider more easing steps to underpin a delicate recovery.

"The market will remain pressured until US and European policymakers are given a chance to address the problems in their policy meetings starting later this month, which could set the market on a recovery path" Ham Sung-sik, an analyst at Daishin Securities.

Scepticism pressures euro

The euro eased 0.1 percent to $1.2140 after rising against the dollar for the first time in six days on Wednesday.

It was off a 25-month low of $1.2042 hit on Tuesday but also below a peak on Wednesday of $1.21705. Against the yen, the euro traded at ¥94.87, still near a low of ¥94.12 touched on Tuesday, its weakest since November 2000.

The dollar held steady against the yen above ¥78.

"The fact is the ECB is still quite divided on the issue of giving the ESM a banking license," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong, referring to the eurozone's rescue fund.

"I think if anything, any bounce that this has induced would be short-lived. I don't see the euro sustaining gains."

Data released on Wednesday underscored the damage the three-year debt crisis has inflicted on Europe's economic activity.

German business sentiment dropped in July for a third straight month to its lowest level in more than two years, according to the latest survey by the Munich-based Ifo think tank, while British economic output shrank much more than expected in the second quarter, official data showed.

The top 10 US prime money market funds reduced their eurozone debt holdings to 8% of their combined assets in June, the lowest level since 2006 as concerns over Spain intensified, Fitch Ratings said in a report on Wednesday.

A general easing in risk aversion helped to improve Asian credit markets, narrowing the spread on the iTraxx Asia ex-Japan investment-grade index by 2 basis points.