Asian stocks rebound on hopes of further Fed stimulus

Last Updated: Tue, Mar 27, 2012 06:42 hrs

By Alex Richardson

SINGAPORE (Reuters) - Asian stocks rebounded, with Japan's Nikkei hitting a one-year high, and the dollar struggled on Tuesday after Federal Reserve Chairman Ben Bernanke said ultra-loose monetary policy was still needed to reduce unemployment.

Europe's major equity markets were also poised for gains, with Euro STOXX 50 index futures opening up 0.7 percent, while financial spreadbetters called London's FTSE to start trading 0.2-0.3 percent higher.

Wall Street stocks had risen more than 1 percent on Bernanke's comments, which supported views that easy monetary policy would remain in place for some time despite signs of improvement in the U.S. economy and fanned hopes for more asset purchases by the U.S. central bank.

"It was more a reminder that the Fed stands ready to turn on the printing presses again should conditions warrant it," said Ben Le Brun, market analyst with OptionsXpress in Sydney.

Global equities have been rallying since late last year, partly due to steadily improving U.S. economic data and massive doses of liquidity from central banks, but hit a bump in mid-March after China signalled its growth was moderating.

MSCI's broadest index of Asia Pacific shares outside Japan rose 1.4 percent. Tokyo's Nikkei share average rose 2.4 percent, hitting its highest level since the massive earthquake and tsunami on March 11 last year and taking its gains for the year-to-date to more than 20 percent.

Gains in Asian equity markets have been boosted by the return of foreign funds this year as ample liquidity, ultra-low interest rates and signs of easing in the euro zone's debt crisis prompt some money managers in the United States and Europe to go hunting for better returns overseas.

"I think foreign buying will continue as they are still slightly underweight in Japanese equities," said Jun Yunoki, an equity strategy analyst at Nomura in Tokyo.


In a speech to the National Association for Business Economics, Bernanke said easy monetary policy would support demand and, over time, drive down long-term unemployment.

"His argument that unemployment was largely cyclical rather than structural caught the market's imagination," said Sebastien Galy, strategist at Societe Generale.

"It suggests QE3 is on its way or at least a very dovish stance until such a point as unemployment falls enough."

Previous rounds of "quantitative easing" (QE), the creation of money to fund asset purchases, by the Fed, have weakened the dollar. The dollar index, which measures the currency against a basket of major peers, was down 0.1 percent near a four-week low.

The euro, which was also supported by data from Germany showing business morale rose unexpectedly for a fifth successive month in March, climbed to its highest in a month before easing to trade steady on the day around $1.3350.

Commodity-linked currencies, hit hard last week by growing fears of weaker Chinese demand for resources, also gained. The Australian dollar popped back above $1.05, well off last week's low of $1.0333.

"As participants cautiously price more QE back into markets, the commodity currencies -- the Australian, Canadian, and New Zealand Dollar -- are likely to attract attention given their high yields relative to the U.S. dollar," said Christopher Vecchio, currency analyst at DailyFX.

Commodities were mostly steady, after gains in the previous session on Bernanke's comments, supported by the weaker dollar which encourages purchases of dollar-denominated commodities by holders of other currencies.

Copper rose 0.1 percent to around $8,530 a tonne, after rising nearly 2 percent on Monday. Oil lost some ground, with U.S. crude dipping below $107 a barrel and Brent crude easing about 20 cents to around $125.45.

"The weaker dollar is very supportive," said Nick Trevethan, a senior commodity strategist at ANZ in Singapore. "Going forward, market sentiment should be more friendly towards commodities right after the Bernanke's commentary."

(Additional reporting by Florence Tan and Lewa Pardomuan in Singapore, Mari Saito in Tokyo and Ian Chua in Sydney; Editing by Edwina Gibbs)

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