Asian shares rise on hopes for U.S. fiscal deal
By Chikako Mogi
TOKYO | Mon Nov 19, 2012 11:33pm EST
(Reuters) - Asian shares rose on Tuesday on hopes of a compromise in the U.S. fiscal crisis, while the euro fell after Moody's Investors Service scrapped France's top-notch credit rating, reminding investors of the downside risk from the euro zone debt woes.
With risk assets from stocks to commodities rallying over the past two sessions, recovering some of last week's sharp losses, markets were prone to profit taking as trading will likely slow ahead of Thanksgiving holiday weekend.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.6 percent, led by the materials and technology sectors .MIAPJMT00PUS .MIAPPJIT00PUS.
South Korean shares .KS11 rose 0.6 percent, pulled higher by tech stocks, and Hong Kong .HSI stocks added 0.8 percent. Shanghai shares .SSEC were down 0.1 percent, but were off their lowest since early 2009 hit on Monday.
Japan's Nikkei average .N225 was up 0.1 percent, after climbing to a fresh two-month high earlier, rising for the fifth day in a row. .T
The dollar was steady against a basket of key currencies .DXY, moving away from the two-month high of 81.455 hit on Friday, helping to cap commodities and gold. Crude oil also retreated after jumping almost 3 percent on Monday.
As expected, the Bank of Japan took no fresh steps after a two-day policy meeting on Tuesday, reiterating that it would pursue powerful monetary easing as Japan's economy is weakening.
The dollar was down 0.2 percent at 81.26 yen, but held near its highest since April 25 of 81.59 yen touched on Monday.
David Baran, co-founder of Tokyo-based hedge fund Symphony Financial Partners, said Japanese equities and the yen were attractive in comparison to other Asian assets as they have stayed at the lower end of ranges through 2012 and there are expectations that next month's election will result in a government that wants the BOJ to take stronger stimulus steps.
"Just from a risk-reward standpoint, you are seeing investors looking at Japan, looking at the yen," he said. "If you are trying to trade big moves, turning points, then you are getting into low risk, high reward possibility in yen and subsequently Japanese equities."
Wall Street stocks climbed almost 2 percent, extending a rally that began on Friday, with the Standard & Poor's 500 Index .SPX closing above its 200-day moving average for the first time in eight sessions.
The rise on Wall Street reflected investors' view that U.S. lawmakers will reach a deal to avert $600 billion in tax increases and spending cuts due to start in January - the "fiscal cliff" that threatens to send the U.S. economy back into recession.
Prospects that Greece will get a lifeline to stay solvent also helped boost markets, but the euro zone's debt crisis saw Moody's cut France's government bond rating to Aa1 and kept its negative outlook, citing the country's uncertain fiscal outlook and deteriorating economic prospects.
France's downgrade sent the euro down 0.3 percent to $1.2777 in early Asia from $1.2810, a two-week high reached on Monday, and also pushed crosses lower such as the euro against the yen down 0.2 percent and the Australian dollar against the yen down 0.1 percent. The euro was last at
$1.2804.
"Moody's news is certainly not positive but market reaction seems contained," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, adding that trading was getting lighter ahead of the U.S. Thanksgiving holiday weekend.
"Given the recent market rally, the rest of the week is likely to be spent on adjusting positions before the long weekend, with any uptick giving way to profit taking," he said.
Euro zone finance ministers are expected to give a tentative go-ahead for the disbursement of 44 billion euros in emergency loans to Greece at a meeting later on Tuesday. The ministers will also discuss how to reduce Greek debt and provide two extra years of external financing to help the country achieve its fiscal targets.
TAIL RISKS REMAIN
European equities rebounded from multi-month lows on Monday for their biggest daily gain in 10 weeks on signs of progress in U.S. talks to avoid a budget crisis.
Ratings agency Fitch on Monday warned that failure to reach a deal on the "fiscal cliff" could trigger a recession and push the U.S. jobless rate above 10 percent. Given such "far-reaching effects," Fitch said it did not expect Congress to allow it to happen, echoing recent market optimism.
But Richard Franulovich, senior currency strategist at Westpac Securities in New York, said in a note that the positive conciliatory rhetoric over the "fiscal cliff" could easily come unstuck, while anything that is produced at the euro zone finance ministers' meeting is likely to be piecemeal.
"Given our read of the fiscal cliff and Greek risks we remain comfortable fading strength in risk assets," he said.
U.S. crude futures eased 0.1 percent to $89.17 a barrel while Brent was nearly flat at $111.66.
China's foreign direct investment inflows fell 3.45 percent in the first 10 months of 2012 from a year ago, but were on track to secure over $100 billion for the third consecutive year, following a raft of other economic indicators for October which pointed to a recovery gaining pace in the world's second-largest economy.
(Editing by Simon Cameron-Moore)
