Shares rise as Merkel soothes nerves

2012-08-17 08:03

Tokyo - Shares firmed on Friday as German Chancellor Angela Merkel voiced support for the European Central Bank's efforts to contain the debt crisis in the eurozone, soothing investor nerves and prompting them to shift money to riskier assets.

Merkel said ECB president Mario Draghi's declarations last month to do whatever it takes to save the euro and raising the prospect of buying the bonds of stricken Spain and Italy were "completely in line" with the approach taken by European leaders. She also called for Europe's swift fiscal policy integration, saying time was running short.

Merkel's comments buoyed equities and oil on Thursday as they kept hopes for more stimulus while the dollar was pressured by lacklustre data. The weaker dollar, however, supported commodities.

World equities rose to near three-and-a-half month highs on Thursday on hints China is eyeing new support for its economy. European shares rose to within touching distance of their 2012 peaks.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.2% while Japan's Nikkei stock average rose 0.6%.

"What's interesting is the way investors seem to be rotating between banks and resources at the moment," said Damien Boey, equity strategist at Credit Suisse, of Australia's equity market , which was among the region's better performers with a 0.5% rise.

Australian shares have been bolstered by good earnings results, but it was hard for the market to read too much into corporate earnings, while central banks had not delivered growth stimulus, Boey said.

The euro traded at $1.2353, not far from Thursday's high of $1.2373. The dollar steadied at ¥79.35, a tad below ¥79.408 hit on Thursday, its highest in over a month.

Oil fell, with Brent crude falling 0.6% to $114.61 a barrel and US crude futures easing 0.2% to $95.39 a barrel.

Fed less clear

While few doubt the ECB will take some decisive steps to tackle the three-year debt crisis, the outlook was less clear for the Federal Reserve's future policy tactics.

Such uncertainty has weighed on US Treasuries, pushing the benchmark 10-year Treasury yield up to a three-month high of 1.862% on Thursday.

"(US) data continue to firm up. Additional easing by the Fed is unlikely, given this macroeconomic backdrop," Barclays Capital said in a research note.

"Market volatility has remained low, despite low liquidity. The lack of information regarding key market risks has been an important reason for this ... Risky assets may continue to receive some near-term support as investors search for anything with some risk premium associated with it," it said.

Thursday's data showing a trend measure of Americans signing up for new jobless benefits fell close to a four-year low last week, building permits rose in July even when housing starts fell, and a weak regional factory gauge together suggested US recovery may pick up later this year but is still vulnerable.

These followed a string of recent solid reports on jobs, industrial output and retail sales for July.

Spot gold inched up 0.1% to $1 615.90 an ounce after posting its biggest rise in almost two weeks on Thursday on bets for more central bank stimulus.

Asian credit markets firmed slightly, with the spread on the iTraxx Asia ex-Japan investment-grade index tightening by 1 basis point.

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