Finance International

Asian shares gain, dollar firm as U.S. data soothes rate fears

By Hideyuki Sano and Nichola Saminather

TOKYO/SINGAPORE (Reuters) – Asian shares jumped on Wednesday, taking cues from sharp gains in European and U.S. markets, while the dollar firmed as upbeat U.S. home sales supported the view that the economy may be strong enough for the Federal Reserve to raise interest rates in coming months.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.6 percent while Japan’s Nikkei surged 1.8 percent as exporters got a boost from a weaker yen.

China’s CSI 300 index advanced 0.4 percent and the Shanghai Composite climbed 0.3 percent. Hong Kong’s Hang Seng index gained 2.3 percent.

U.S. new home sales data on Tuesday showed a jump in April to their strongest monthly pace in more than eight years, with prices setting record highs.

The gains, coming on the heels of a raft of positive U.S. data and comments from various Fed officials highlighting the chance of a rate hike in June or July, helped cement the case for one in the next few months and eased investors’ fears that the economy may not be resilient enough to withstand an increase in borrowing costs, however modest.

Policy-sensitive two-year U.S. notes were yielding 0.9264 after again rising to the 10-week high of 0.930 percent touched on Tuesday. U.S. interest rate futures are pricing in more than 60 percent chance of a rate hike by July, compared to around 20 percent about 10 days ago.

“There appears to be a consensus among Fed policymakers that they have to put a rate hike back on the table because markets had been pricing in almost no chance of a rate hike,” said Koichi Yoshikawa, executive director of financial markets at Standard Chartered Bank.

Higher interest rates benefit financial shares as they increase interest income, helping to lift bank shares.

On Wall Street, the S&P 500 Index rose 1.4 percent, helped by high-tech and banking shares, which will benefit from higher rates.

European shares climbed sharply overnight, also led by financial shares, with the pan-European stock index rising 2.3 percent to its highest level since late April.

The news flow in Europe was generally positive for investor sentiment.

A UK poll showed a 13-point lead in support among Britons to stay in the European Union over their “leave” rivals while Greek bond yields hit six-month lows as European finance ministers appeared likely to approve new loans to Athens.

In a major breakthrough, euro zone finance ministers also agreed a deal with Greece and the International Monetary Fund in the early hours of Wednesday that will address Athens’s requests for debt relief.

The Brexit poll results helped the British pound gain 1.1 percent, its biggest daily gain in 10 weeks, on Tuesday.

The sterling traded at $1.4607, near last week’s peak of $1.4663, a break of which could open the way for a test of $1.4770, its four-month peak hit in early May.

In another clear sign of easing concerns on the “Brexit,” implied volatilities on sterling options also fell to lowest level in almost a month.

The U.S. dollar gained against most other currencies thanks to the rate hike expectations.

The dollar index, which measures the greenback’s performance against a basket of six major currencies, was holding steady at 95.604, after earlier climbing to a two-month high of 95.661.

The dollar strengthened 0.2 percent to 110.165 yen from this week’s low of 109.12, within sight of its three-week high of 110.59 touched on Friday.

The euro held steady at $1.1145, near its 10-week low of $1.1133 seen Tuesday. It has shed more than 4 percent since it hit an eight-month peak of $1.1616 in early May. It barely reacted to the news about an agreement on debt relief for Greece.

The Australian dollar was also little changed at $0.7186. It slipped to a 12-week low of $0.7145 on Tuesday, pressured by expectations of a rate cut by the Reserve Bank of Australia.

Gold was last trading up 0.1 percent at $1,227.60 after hitting a six-week low of $1,226.50 per ounce on Tuesday.

Many emerging market currencies felt the dollar’s heat but the Turkish lira jumped 1.6 percent off near four-month lows after investor-friendly deputy prime minister Mehmet Simsek kept his post in the government.

Oil prices held firm, helped by a rise in overall risk appetite and expectations of a drawdown in U.S. crude inventories.

U.S. crude futures rose 1.3 percent to $49.25 per barrel, close to the 7-1/2-month high of $49.29 seen in early Asian trade.

Brent crude futures gained 1.2 percent to $49.18 per barrel, near last week’s 6-month high of $49.85.

(Repoting by Hideyuki Sano and Nichola Saminather; Editing by Eric Meijer and Kim Coghill)

Copyright 2016 Thomson Reuters. Click for Restrictions.

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