* MSCI Asia ex-Japan at 16-mth high, policy hopes buoy China
* Euro hits 7-week high, dollar regains vs yen
* Obama firm on 'fiscal cliff', higher taxes for wealthy
* Australia economy grows 0.5 pct in Q3 vs Q2
* European shares likely to climb
By Chikako Mogi
TOKYO, Dec 5 (Reuters) - Asian shares hit a 16-month high on
Wednesday, led by surging Chinese equities on hopes for stable
growth, but concerns over whether U.S. lawmakers can break a
budget impasse before year-end to avert a possible economic
slump kept optimism in check.
European shares were expected to rise, with financial
spreadbetters predicting London's FTSE 100, Paris's
CAC-40 and Frankfurt's DAX to open as much as 1
percent higher. A 0.3 percent gain in U.S. stock futures
hinted at a similarly firm Wall Street open.
MSCI's broadest index of Asia-Pacific shares outside Japan
advanced 0.8 percent, gaining momentum as
Shanghai shares soared nearly 3 percent to reclaim the
2,000-point level after slumping to near four-year lows last
Chinese shares were boosted by remarks late on Tuesday from
new Communist Party chief Xi Jinping, who said that the
government aimed to stabilise exports and make policies more
targeted and effective.
"We are due for a short-term bounce anyway. Xi's comments
suggest he thinks the Chinese economy has bottomed and inflation
is not going to be a big problem," said Hong Hao, chief equity
strategist at Bank of Communications International Securities.
Hong Kong shares jumped 1.5 percent, Australian
shares rose 0.4 percent and Japan's Nikkei stock average
erased earlier losses to end up 0.4 percent at a
seven-month closing high.
"China and the yen are the main drivers," a trader at a
foreign bank said.
The HSBC Purchasing Managers Index for China's services
sector on Wednesday showed the barometer slipped to 52.1 in
November from October's 53.5, but recent indicators from factory
output to retail sales and investment reflected positive effects
from Beijing's pro-growth policies.
Growth prospects for China, the world's second-largest
economy, and a fiscal crisis facing the world's top economy
remain underlining market themes. However, daily flows are
increasingly being dictated by year-end position reshuffling,
with price swings magnified by thinning activity ahead of the
holidays, traders said.
The White House and Republicans remain at odds on how to
avoid a $600 billion "fiscal cliff" of U.S. budget cuts and tax
increases starting from Jan. 1. Despite the uncertainty, markets
hope U.S. lawmakers will eventually reach a compromise.
President Barack Obama dangled the possibility on Tuesday of
lowering tax rates in 2013 with a broad U.S. tax code revamp,
but stood firm on insisting rates for the wealthiest must rise
as part of a budget deal with Congress.
His conciliatory tone helped drive the dollar lower and
risky assets higher, Sebastien Galy, currency strategist at
Societe Generale, said in a note to clients.
"This rally in risk is tempered by a steady profit-taking as
investors close their books for the year and some need to lock
in their profits ... Short term redemptions are a factor in
December after a difficult year," Galy said.
Spot gold inched up 0.3 percent to $1,701.95 an
ounce, after falling to its lowest in nearly a month on Tuesday.
"If the U.S. really falls off the 'fiscal cliff', we are
likely to see some buying of gold for store of value and also on
the outlook that the U.S. dollar may depreciate further," said
Lynette Tan, senior investment analyst at Phillip Futures in
SUPPORT FOR EURO
Risk sentiment was also supported by receding fears about
the contagion risk of the euro zone's debt crisis after a Greek
plan to buy back debt pushed the euro to a fresh seven-week high
of $1.3125 on Wednesday. The plan spawned optimism that
Athens will secure much-needed emergency aid to avert a default.
"The news helped those who were sceptical of Greece cover
their short euro positions but at this time in the year, market
activity will be influenced by position adjustments before the
year-end holidays, with each currency pair moving on its own
factor," said Hiroshi Maeba, head of FX trading Japan for UBS in
"Friday's U.S. nonfarm payrolls will be key to market
sentiment and the U.S. fiscal issue will be the primary focus
for markets," he said.
But other analysts noted that due to the impact of
superstorm Sandy on the U.S. Northeast in November, it may be
difficult to get a clear picture of the labour market from
The U.S. Federal Reserve is set to announce a fresh round of
Treasury bond purchases at its Dec. 11-12 meeting, replacing a
programme which expires at the end of the year called Operation
Twist, under which it bought $45 billion of longer-dated bonds a
month while selling its shorter-date holdings.
The dollar climbed 0.4 percent against the yen to 82.23 yen
Australia's resource-reliant economy grew a moderate 0.5
percent last quarter, but lower export revenues government
cutbacks and a decelerating mining boom painted tougher times
The Reserve Bank of Australia (RBA) cut interest rates to a
record-matching low of 3 percent on Tuesday. The local dollar
held around $1.0470.
U.S. crude futures were up 0.4 percent to $88.87 a
barrel and Brent futures were up 0.2 percent to $110.04.
A rise in broad assets boosted sentiment for Asian credit
markets, narrowing the spreads on the iTraxx Asia ex-Japan
investment-grade index by 3 basis points.