Spain reform plans boost shares

Reflecting choppy market sentiment, the CBOE Volatility index which measures volatility expected in the Standard & Poor's 500 index fell 11.7 per cent yesterday for its sharpest daily decline in three weeks, just a day after the index posted its biggest daily rise in two and a half weeks.

"The budget represents two steps forward and one step back, which is why the euro only moved slightly higher," said Mary Nicola, a strategist at BNP Paribas.

Later today, a stress test of Spain's banking sector will be released, which will reveal how much more money is needed to recapitalise its banks. Moody's latest credit rating review is also expected this week.

Shares in Australia, heavily reliant on resources demand from China, inched up 0.2 per cent, but were capped on concerns over the economic weakness in the world's second-largest economy, with Fitch Ratings cutting its 2012 growth forecast for China from 8 per cent to 7.8 per cent today.

"There are a lot of people out there who are very concerned about whether or not the stimulus in China is real or coming through," said Damien Boey, an equity strategist at Credit Suisse.

Japan's Nikkei stock average bucked the rest of Asia and slumped 1 per cent amid concerns about falling revenues for local companies in China, hit by recent anti-Japan protests.

Following fresh monetary stimulus unveiled by the United States and Japan this month, markets have retained expectations for China to cut interest rates to spur growth, as weakening demand in China has damaged global economies and weighed on investor sentiment.

Data today showed Japan's industrial output fell more than expected in August as the world's third-largest economy was held back by a strong yen, the euro zone debt crisis and a slowdown in its top export market China.

Thailand, Southeast Asia's second-largest economy, also saw factory output in August falling a bigger-than expected 11.32 per cent from a year earlier as faltering global demand weighed, raising the chances for an interest rate cut.

Brent crude futures rose 0.3 per cent to 112.36 a barrel, as Spain eased investor worries about Europe's fiscal crisis and revived hopes of a recovery in oil demand growth. Worries about supplies from the Middle East also provided support. US crude was up 0.5 per cent to $92.32.

Reuters