Shares extend rally on China relief, Bernanke next focus

TOKYO: Asian shares extended their rally on Monday as fears of an
economic hard landing in China subsided, with Premier Wen Jiabao
raising the prospect of more policy stimulus if needed.
With
worries about China off the boil, the markets focus is shifting to the
next policy move from the United States and a slew of corporate
earnings from U.S. firms this week.
Gains in equities were capped and oil retreated from Friday's increases as traders awaited Federal Reserve Chairman Ben Bernanke's semi-annual testimony to the U.S. Congress on the economy set for Tuesday and Wednesday.
Markets
will seek clues on the Fed's stance over a stronger monetary policy to
support the U.S. recovery, after central banks from Europe, China and
Brazil earlier this month cut interest rates to bolster fragile growth.
Bernanke
is expected to repeat that the Fed will take further easing measures
only if necessary, which could dampen hopes for more immediate stimulus
and weigh on risk appetite while supporting the dollar.
"Markets
are settling back into wait-and-see mode ahead of testimony by Fed
Chairman Bernanke to US lawmakers on the state of the economy and
potentially, the central bank's policy options," ANZ Bank said in a research note.
MSCI's
broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> inched up 0.3 percent after jumping 1 percent on
Friday. The materials sector <.MIAPJMT00PUS> led the gains,
followed by the energy sector <.MIAPJEN00PUS>.
The
resource-reliant Australian equity market <.AXJO> was Asia's top
performer with a 0.7 percent gain as worries about China's economy
eased. China is Australia's largest trade partner.
But Chinese
shares lagged as profit warnings continued to pour in from mainland
firms hit by the slowdown in demand at home and abroad.
Hong Kong shares <.HSI> edged higher but were weighed down by warnings from firms such as ZTE Corp
<0763.HK> <000063.SZ>, China's second-largest telecoms
equipment maker, and falling shares in Asia's largest developer, Sun
Hung Kai Properties <0016.HK>, after the billionaire brothers who
run the company were charged in a bribery case. Shanghai shares
<.SSEC> lost 1 percent.
Japanese markets were closed on Monday for a public holiday.
China
on Friday reported that second-quarter gross domestic product grew 7.6
percent from a year earlier, in line with expectations.
But the
relief rally that followed the data suggested markets were largely
short covering from oversold conditions, as risk appetite has been
curbed by concerns about corporate earnings, and the protracted euro
zone debt crisis adding to global economic uncertainty.
"The
market's next focus is on Bernanke and investors will be combing
through a slew of earnings in the mean time, but forecasts have already
been notched down several times in the run-up, so there won't be any
big disappointments barring a significant shortfall," said Lee
Seung-wook, an analyst at Kiwoom Securities, about the Korean equities
market.
China's Wen said efforts to stabilize the economy are
working and the government will beef up steps in the second half of
2012 to boost policy effectiveness and foresight, the official Xinhua
news agency reported on Sunday.
Oil pared earlier gains, after
settling up more than $1 on Friday, with Brent crude down 0.1 percent
at $102.30 a barrel and U.S. crude easing 0.5 percent at $86.70.
EUROPE JITTERS
The euro nudged up from its two-year low of $1.2162 hit on Friday, trading at $1.2239 on Monday.
Investors remain wary about whether borrowing costs in highly-indebted Spain and Italy would start to climb again.
Italian
banks shrugged off Moody's downgrade of Italy's credit rating to
near-junk status and helped Rome sell the maximum amount of bonds it
was targeting at an auction on Friday, lowering three-year bond yields
to their lowest since May. But 10-year yields rose to near 6 percent.
Reflecting
investor jitters over the euro, currency speculators raised their bets
in favor of the U.S. dollar in the latest week, while boosting their
positions against the euro to their highest in a month, data from the
Commodity Futures Trading Commission showed on Friday.
Ahead of a meeting of euro zone finance ministers later this week, Chancellor Angela Merkel
said on Sunday she was confident that a majority of German lawmakers
would back aid for Spain's ailing banking sector at a special sitting
of the lower house Bundestag set for Thursday.
As flight to
safety pushed government bond yields in the United States and Germany
to or near record lows and to nine-year lows in Japan, yield-hungry
investors sought returns in High Yield and Emerging Market Bond Funds
in the second week of July, EPFR Global said on Friday.
Bond
Funds collectively took in $4.87 billion during the week ending July 11
-- an eight week high that pushed year-to-date inflows over the $200
billion mark -- while Equity Funds posted net outflows of $327 million,
EPFR said. - Reuters