Asia shares rally on US data, yen weakens

Asia shares rally on US data, yen weakens

Hong Kong: Asian stocks rose for the first time in three days on Thursday as US housing data fueled optimism about the world’s largest economy, while the yen was pressured by expectations that Japan’s new political leaders will favour a weaker currency.

Solid sales growth for May from major US automakers also helped the auto sector in Japan, while stocks in Seoul received an additional boost from foreign buying.

Tokyo’s Nikkei share average surged 2.6% to its highest in nearly two weeks, as exporters received a leg-up from the upbeat economic data in the United States, one of Japan’s biggest export markets, with the weak yen also helping.

Honda Motor and Toyota Motor both rose 3.7%.

In Seoul, the Korea Composite Stock Price Index (KOSPI) was up 1.4%, its highest in over two weeks with foreign buying of a net won 123 billion ($102 million) worth of stocks, after selling on Tuesday. The Seoul market was closed on Wednesday for a public holiday.

“US shares’ strong gains on Wednesday have helped ease broader external worries about the euro zone’s debt issues and consequent economic slowdown, boosting appetite for risk once again," said Park Suk-hyun, a market analyst at KTB Securities.

US stocks rallied more than 2% after pending sales of previously owned U.S. homes topped expectations in April to hit a six-month high, and as investors rushed back to heavily sold sectors such as energy, looking for bargains.

Economists are hoping for a strong US non-farm payrolls report on Friday, suggesting a broadening economic recovery will be able to weather Europe’s debt storm.

On Thursday, the MSCI index of Asia Pacific ex-Japan stocks was up 2.4%, led by resources and materials stocks materials and financials

The yen’s woes continued following a two-week low struck against the U.S. dollar on Wednesday after Japanese Prime Minister Yukio Hatoyama and his deputy resigned to try to boost the ruling party’s faltering fortunes in an election next month.

Finance Minister Naoto Kan, who is tipped to be the successor, surprised markets earlier this year by saying he wanted the yen to weaken more and that most businesses favoured a dollar/yen rate around 95 yen.

In Asia trade, the dollar inched up 0.1% to ¥92.20 hovering near a 2-week high of 92.36 yen hit the previous day. The weaker outlook for the yen benefitted the floundering euro also, with the single currency rising 0.4% to 113.26

Despite Thursday’s rally in riskier assets, investors remained wary as Europe’s debt problems continued to fester.

“That (the market bounce) is not to say concerns toward the euro zone have ebbed. The situation continues to be watched with caution following the recent rise in Spain’s short-term yields," said Shoji Yoshigoe, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Spanish Prime Minister Jose Luis Rodriguez Zapatero said on Wednesday the government would present long-awaited labour market reforms on June 16 whether or not it had reached a deal with unions and employers.

Bank of Japan policy board member Miyako Suda highlighting the risks to the Japanese economy amid concerns that Europe’s problems and the ensuing market turmoil could hurt Japan.

Debt-laden Greece outlined plans to raise more than 3 billion euros by selling stakes in some of its struggling state-run businesses but said it will hold back its more attractive assets.

“We would be more convinced of the rally’s durability if it were accompanied by falling Western European Sovereign CDS," said a client note from ING Bank.

Overnight, The Markit SovX Western European index of credit default swaps widened 7.5 basis points to 154.5 bps. It is just off the record peak of around 170 bps struck last month.

US oil futures prices rose as much as $1.03 to $73.89 a barrel after an industry group reported U.S. crude inventories fell more than expected last week.

Safe haven US Treasuries were steady despite the sharp rise in demand for riskier assets, indicating there were investors who remained suspicious of the rally.

Benchmark 10-year notes are yielding 3.34% after rising 7 bps overnight. They are still far below the high of 4.00% hit in early April.

Gold prices fell on speculative selling but an increase in ETF holdings to another record suggested demand from investors remained firm.