Asian stocks approach 14 month high

Asian shares edged closer to 14-month highs on Friday while the dollar was on the defensive as investors grew more convinced that the Federal Reserve is settling into a phase of very gradual interest rate hikes.

MSCI's broadest index of Asia-Pacific shares outside Japan was steady and within sight of its highest levels since July 2015 that it hit in early September.

Japan's Nikkei dipped 0.2 per cent, reflecting the yen's gains during Japan's market holiday on Thursday.

On Wall Street, S&P 500 Index gained 0.65 per cent, led by 1.9-per cent gain for the real estate sector.

The S&P 500 capped its best two-day performance in more than two months, while the Nasdaq closed at a record high.

The rallies began after the Fed on Wednesday maintained the low-interest rate environment that has helped underpin the bull market for stocks since the global financial crisis in 2008.

"Because the Fed is shying away from tightening, there will be liquidity sloshing around in the world's financial markets as well for another few months," said Tatsushi Maeno, senior strategist at Okasan Asset Management.

Fed Chair Janet Yellen did say US growth was looking stronger and rate increases would be needed to keep the economy from overheating and fuelling high inflation.

But that hardly changed the market’s perception on the outlook of the Fed’s policy, with interest rate futures pricing in roughly 60 per cent chance of a rate increase by December, little changed from before the Fed meting.

Crucially, the Fed also projected a less aggressive rise in rates next year and in 2018, fanning expectations bond yields will stay low in the foreseeable future.

The 10-year US Treasuries yield dropped to as low as 1.608 per cent, down sharply from Wednesday’s high of 1.738 per cent and hitting its lowest level in almost two weeks.

- Reuters