Asian markets rise on stimulus hopes

Asian shares rose today on hopes for further stimulus from the European Central Bank and the US Federal Reserve, both of which hold policy meetings this week, but scepticism about the long-term effectiveness of any ECB actions capped the euro.

European stocks were set for modest gains, with a 0.3 per cent rise in US stock futures signalling a firm start on Wall Street. Financial spreadbetters called the main indexes in London, Paris and Frankfurt to open as much as 0.2 per cent higher.

MSCI's broadest index of Asia-Pacific shares outside Japan rose by 1.5 per cent to hit its highest level since May 11th and was set for a monthly gain of 3.7 per cent, slightly ahead of June's 3.5 per cent rise. Korean stocks led the region today, gaining 2.3 per cent.

"Risk appetites have seen a dramatic improvement over the last few sessions and the return of foreign buying is underpinning preferred stocks, a mix of large-caps that are lifting the market as a whole," said Cho Sung-joon, an analyst at South Korea's NH Securities.

The impact of the three-year euro debt crisis on Asia was evident today, however, with Japan's Manufacturing Purchasing Managers Index (PMI) falling at its fastest pace since last year's earthquake and tsunami, as demand for Japanese goods slows in Europe and China.

Market sentiment has been underpinned by speculation the ECB, at a meeting on Thursday, may resume its bond buying programme to force down rising Spanish and Italian borrowing costs, but German opposition has heightened uncertainty. The Fed has also come under greater pressure to support flagging growth, but many economists do not expect any further easing until September. The Fed starts a two-day policy meeting today, ahead of a key nonfarm payrolls report due on Friday.

"There is a bit of positive sentiment supporting the market. The optimism stems from the upcoming central bank meetings and local data is helping too," said Stan Shamu, market strategist at IG Markets, referring to Australia's smaller-than-expected decline in building approvals in June. Japan's Nikkei stock average rose 1 per cent.

The euro edged up 0.2 percent to $1.2285, still below a three-week high of $1.2390 touched on Friday but well above a two-year low around $1.2042 reached last week. The euro was also up 0.2 per cent against the yen at 95.95.

The Australian dollar hit a four-month high against the US dollar at $1.0537 today and an all-time peak versus the euro around A$1.1646 in offshore trade, as speculation of monetary stimulus spurred investor appetite for high-yielding currency. But caution remained about the effect of any measures from the ECB, given doubts that central bank action will be sufficient to resolve the euro zone's fiscal woes.

"Even if the ECB resumes its bond buying programme, the rise in the euro will likely just be met with selling," said Hideki Amikura, forex manager at Nomura Trust Bank, noting that the euro would at best rise to around 98 yen, for example.

Brent crude held above $106 per barrel but was capped by caution among investors about the effect of any fresh stimulus measures coming from the ECB or the Fed.Copper added 0.3 per cent to $7,569.75 a tonne, supported by stimulus hopes, a weaker dollar and gains in riskier assets such as stocks. Gold edged up 0.2 per cent to $1,623.06 an ounce, as investors awaited monetary policy decisions, a key factor driving bullion prices.

Reuters