Asian stocks cement solid gains
Japanese stocks ended the year with a whimper on Thursday as a stronger yen knocked shares of major exporters lower, but markets elsewhere in Asia rose, cementing solid gains for 2010 led by a near 50 percent rally for Indonesia.
Going from strength to strength, copper scaled a fresh peak at $9,540.75 a tonne, while U.S. crude oil held within a whisker of a 2-year high near $92 a barrel, reflecting growing optimism for global growth.
For now, investors seemed to be cheering prospects for a stronger U.S. recovery in 2011 and ongoing strength in Asia, while shrugging off the risk of more interest rate hikes in emerging economies like China as they deal with inflation and any flare up of the euro zone sovereign debt crisis.
A private survey on Thursday showed China's vast manufacturing sector continued to expand strongly toward the year-end, albeit at a slightly slower pace than in November.
Overall, analysts believe 2011 will be another positive year for equities, particularly as ultra-low interest rates in major economies mean there will be plenty of cash looking for better returns.
While GFC (global financial crisis) aftershocks will continue to cause volatility and shares are becoming vulnerable to a short term correction in January after several months of very strong gains, shares are likely to put in good gains through 2011 as a whole, said Shane Oliver, head of investment strategist at AMP Capital Markets.
MSCI's index of Asia Pacific stocks excluding Japan <.MIAPJ0000PUS> rose 0.6 percent, and was up almost 15 percent this year.
This compared with a rise of 10 percent for the MSCI World stock index <.MIWD00000PUS>, 13.5 percent for the MSCI America index <.MIAM00000PUS> and a paltry 1.3 percent for European stocks <.MIER00000PUS>.
South Korea's KOSPI <.KS11> rose 0.4 percent, closing the year some 22 percent higher, while Indonesia's IDX Composite index <.JKSE>, the region's star performer, advanced 0.4 percent on Thursday, chalking up a whopping 47 percent for this year.
In contrast, Japan's Nikkei <.N225> fell 1.1 percent as investors sold some of the major exporters like Toyota Motor <7203.T> on a firmer yen. The index ended the year down about 3 percent, making it one of the worst performers in the region.
The recent advance of the yen has been a bit unexpected and clearly having a negative psychological impact on share prices, said Takashi Ohba, a senior strategist at Okasan Securities.
Market participants, however, believe Japanese stocks are undervalued compared with other developed markets, suggesting scope for the laggard to make up some lost ground in 2011.
Many Asian markets including Japan, South Korea, Thailand, Indonesia, the Philippines and Malaysia will be shut on Friday, while others like Australia will have half-day sessions.
DOLLAR WILTS
The yen rose to highs not seen since November 9 as the dollar fell across the board after traders took a steep decline in U.S. Treasury yields overnight as a signal to sell the greenback.
Analysts warned thin year-end conditions made for exaggerated moves, although some believed there could be more dollar weakness ahead.
Some market players may be building up positions for the next year. As the Federal Reserve is expected to keep printing dollars, the dollar looks set to cheapen next year, said Tsutomu Soma, manager of foreign securities at Okasan Securities.
The dollar hit a seven-week low around 81.30 yen, and plumbed a 28-year low versus the Australian dollar, which rose to a high just shy of $1.02. The euro climbed to $1.3259, extending Wednesday's rebound from a low around $1.3081.
China's yuan hit a record high against the dollar after the People's Bank of China set a higher mid-point, sparking expectation of more yuan appreciation in the first quarter of 2011.
The U.S. 10-year yield last traded at 3.339 percent, reversing a spike to around 3.5 percent earlier in the week after an auction of seven-year notes on Wednesday drew decent demand.
(Additional reporting by Chikafumi Hodo and Hideyuki Sano in Tokyo)
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