Asian shares reach highest in nearly 3 years
Asian shares outside Japan rose to their highest in nearly three years on Friday, looking to extend a three-quarter winning streak, while the yen slipped on the view Japanese interest rates will stay near zero for a long time to help the quake-ravaged economy.
MSCI's index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> hit its highest level since May 2008 on optimism about global economic growth. It was up 0.63 percent to 489.10 at 0630 GMT.
Japan's Nikkei <.N225> was up till shortly before the close, but then slipped back into negative territory, falling 0.48 percent to 9708.39. A weaker yen is seen as supportive of the nation's exporters during a period of domestic rebuilding but the country's struggle to recover will be a long-term one.
The resilience of most Asian stock market in the face of geopolitical risks indicates further gains are likely, but some investors cautioned the upswing might be overdone and is vulnerable to deterioration with Japan's nuclear predicament, Europe's debt crisis and/or Middle East's political situation.
The markets have absorbed these events pretty well, but things are still very fluid, said Binay Chandgothia, portfolio manager at Principal Global Investors in Hong Kong. The firm manages more than $200 billion in assets worldwide.
In commodity trading, U.S. prices started the new quarter by climbing after closing at their highest in 2- years on Thursday against the backdrop of continued fighting in Libya and unrest in the Middle East.
Gold, which had a 10th straight quarterly gain in the January-March period, fell on more tough inflation talk from U.S. central bankers.
While risky assets generally shone on the first day of the new quarter, investors are treading cautiously ahead of the latest payroll data from the United States later on Friday.
Another month of solid U.S. hiring, expected in the 200,000 area, should reinforce expectations of further global economic expansion but also of an accelerated shift in policy focus among central bankers to stem inflationary pressure.
At the moment, we're getting dragged higher by the momentum we're seeing in the U.S. economy, said IG Markets analyst Ben Potter in Melbourne.
Signs of improving business activity and rising inflation globally have led the U.S. Fed and the European Central Bank to ratchet up their inflation rhetoric, causing traders to second-guess whether U.S. and European rates will be on hold this year.
In the U.S., Minneapolis Fed President Narayana Kocherlakota told the Wall Street Journal on Thursday that the Fed could raise rates by the end of 2011, far sooner than expected by financial markets. Most analysts do not expect rate hikes until the second half of 2012.
INFLATION TALK BOOSTS DOLLAR
A recent spate of hawkish comments from Fed officials has helped boost the dollar and U.S. bond yields with two-year yields rising to 0.84 percent, the highest in six weeks.
The dollar index <.DXY>, which tracks its performance against a basket of major currencies, was up 0.21 percent at 76.018. It climbed to a six-week high against the Japanese currency as it has recovered from a record low of 76.25 yen on March 17 before G7 central banks intervened to halt the yen's rise. It last traded at 83.53 yen.
The euro also strengthened against the yen, hitting a fresh 10-month high of 118.66, in the wake of a weaker-than-expected BOJ tankan business survey.
Growing expectations of the Fed hiking rates and the BOJ leaving rates steady have widened the yield differential between two-year U.S. and Japan government debt. That gap touched above 63 basis points, the widest since early February.
Japan will likely stick to a near-zero rate policy as the world's No. 3 economy faces the risk of a slowdown due to the March 11 natural disasters and the ongoing nuclear crisis.
In the latest developments, a local newspaper reported that the government will take control of Tokyo Electric Power <9501.T> whose shares and public image have been hammered after a series of missteps and mistakes at its quake-stricken Fukushima nuclear plant.
At a G20 meeting in Nanjing, China, Japan's top currency diplomat said on Thursday his country, while satisfied with last month's rare coordinated move to stem yen's rise, will stay vigilant for further invention needs.
In addition to Japan, tension in Africa and the Middle East and the festering public debt problems in Europe are other factors that threaten global growth. But those concerns have receded for now, analysts say, as most economies have showed steady growth, which will further stoke the rise in oil, food and commodity prices.
U.S. crude was up 15 cents at $106.88 a barrel after earlier touching $107.65, an intraday peak since September 2008. Brent crude fell 13 cents to $117.23.
Spot gold traded at $1,432.80 an ounce, down from $1,436.48 late in New York on Thursday, after hitting a record high of $1,447.40 in March.
(Reporting by Chikafumi Hodo and Masayuki Kitano in TOKYO,; Ian Chua in SYDNEY,; Lewa Pardomuan and Alejandro Barbjosa in SINGAPORE; Editing by Sugita Katyal and Richard Borsuk)
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