Wednesday, February 9, 2011

Asian markets take China rate hike in their stride

SINGAPORE: Shares in Asian developed markets rose and the dollar and Swiss franc eased on Wednesday, Feb 9 as investors bet that China's latest interest rate rise would not derail hopes of a sustained economic recovery.

Increased investor appetite for riskier assets was also evident in the bond market, with the five-year Japanese government bond yield climbing to a 15-month high, continuing a global trend of rising yields on government debt.

China raised interest rates by 25 basis points late on Tuesday, its second increase in just over six weeks. The timing was a surprise, coming on the final day of the Lunar New Year holiday, but investors had been expecting further tightening from Beijing to rein in stubbornly high inflation.

"Chinese policymakers' efforts to rein in overheating pressures are now seen in a relatively more positive light by global investors in that they will help slow growth to a more sustainable pace, while other engines of growth in the region begin to rev up," said Samarjit Shankar, analyst at BNY Mellon.

Japan's Nikkei was up 0.3 percent after touching a 9-month high and Australia's benchmark index was also up 0.3 percent. But MSCI's index of Asia Pacific shares outside Japan was flat, weighed down by a decline in South Korean stocks .

Japan has been Asia's best performing market so far this year as healthier corporate profits and worries about building inflationary pressures have encouraged investors to switch money from fast growing emerging markets -- last year's star performers -- to developed market equities.

The Dow Jones industrial average notched a seventh straight day of gains on Tuesday, rising 0.6 percent, as surprisingly strong sales by McDonald's boosted optimism about consumer spending. But technical indicators show it is overbought after a strong run-up that began in September, leaving U.S. markets prone to a pullback or a correction. - Reuters

The Swiss franc , seen as a safe-haven currency, fell across the board on Wednesday and the dollar index , which measures the U.S. currency against a basket of major currencies, was slightly weaker.

Gold , often seen as an inflation hedge, was steady at around $1,364 an ounce and U.S. crude oil futures rose 54 cents to $87.48 a barrel.

News of China's rate hike hit commodities markets in London and New York initially, but prices soon rebounded as investors felt the size of the increase was not enough to stifle its voracious demand for raw materials.

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