Singapore: Asian stocks advanced on Tuesday, supported by optimism that China would avoid aggressive moves to curb inflation that could inhibit its strong economic growth and blunt its voracious demand for raw materials.
The euro hovered near three-week highs against the dollar, with traders citing solid buying from accounts, including Asian central banks, though year-end trading was thin and choppy.
A warning from Moody’s also weighed on the dollar. The credit ratings agency said overnight it could move a step closer to cutting America’s triple-A rating if the Obama administration’s deal to extend tax cuts wins Congressional approval and pushes up the country’s already bloated debt levels.
Metals prices rose after Chinese data released at the weekend showed buoyant industrial production and fixed asset investor, pushing copper to record highs and buoying shares of miners and other resource-related companies.
“Sentiment is decidedly more upbeat now than it was a few weeks ago,” said Austock senior client adviser Michael Heffernan. “China didn’t increase rates, Ireland has settled down, America has given the tick to the tax bill and there is no major domestic data out.”
Many investors had feared China would raise interest rates last week to curb mounting inflationary pressures, but the central bank opted instead to increase the amount of extra capital top banks must hold.
An official newspaper on Tuesday said China would probably target the same level of new loans next year as in 2010, a further indication that policy could be slightly looser than expected.
A Reuters poll released on Monday showed economists still see a rate rise in China in coming months, but expect policymakers to rely more on lending controls in 2011 as its weapon of choice in the fight against inflation.
The MSCI index of Asian stocks outside of Japan rose 0.4%, while the Nikkei was little changed.
Traders said that if the Nikkei can hold on to its recent gains, retail investors are likely to jump on the bandwagon and help it pierce strong technical resistance looming at 10,420.74, the level where futures and options contracts expiring in December settled on Friday.
South Korean stocks hit a fresh 37-month high, breaching the psychologically significant 2,000-point level, fuelled by gains in key technology issues and the auto sector such as Hyundai Motors .
Buoyed by optimism about Chinese demand for commodities and resources, Australian shares edged up 0.2% and stood within 100 points of breaking even for the year, with some traders optimistic that would be achieved.
In New York on Monday, the broad S&P 500 index closed flat and the Dow ended just above break-even amid signs US stocks may be nearing overbought levels, and on investor caution about staking out new positions heading into year-end.
Moody’s warning weighs on dollar
The dollar index was last at 79.357, having plumbed a three-week low of 79.101 earlier. The euro was at $1.3386, having risen as high as $1.3433 .
The dollar slid overnight after Moody’s said it could move a step closer to cutting the United States’ Aaa rating if President Barack Obama’s tax and unemployment benefit package becomes law, lifting the likelihood of a negative outlook on the rating.
Helped by high copper prices and gains in other metals such as gold, commodity currencies shone. The Australian dollar put on nearly 1.5 cents overnight to come close to testing parity. It was last at $0.9944 .
Oil prices fell 40 cents to $88.21 a barrel ahead of US Oil industry stock data.