European stocks rise, Asia lifted by Japan stimulus

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, 26 July

LONDON (Reuters): Stocks rose in Europe and Asia on Wednesday while the yen sank against the dollar, after Prime Minister Shinzo Abe said his government would present a $265 billion stimulus package to reflate the Japanese economy.

The larger-than-expected figure helped lift Tokyo stocks 1.7% and Asian shares to one-year highs as investors looked ahead to a Bank of Japan meeting on Friday, with expectations running high it will take steps to ease monetary policy.

European shares were led higher by the auto and luxury sectors, while Deutsche Bank dropped 4.6% after it unveiled sharply lower second-quarter revenues as low interest rates and volatile markets weighed on the business.

The pan-European index rose 0.5% and the FTSEurofirst 300 0.4%. Britain’s FTSE 100 index gained 0.3%. Germany’s DAX index rose 0.8% and has recouped all losses incurred since Britain’s 23 June vote to leave the European Union.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1%, having previously climbed to its highest level since Aug. 11, 2015. It has risen 10% so far this month.

Chinese stocks, however, had their worst day in six weeks on worries about new regulatory restrictions.

More dollar downside?

In currency markets, the dollar rose nearly 1% to 105.70 yen, having risen as far as 106.54 at one point, after reports of the Japanese stimulus package.

“So far it looks like the Bank of Japan is not ready to do something new and that leaves the potential for more downside for the dollar before the meeting on Friday,” said Thu Lan Nguyen, a currency strategist with Commerzbank in Frankfurt.

Gains against the yen pushed the dollar up 0.1 percent against a basket of currencies before a policy announcement from the Federal Reserve later in the day.

The US central bank is not expected to change policy this month but investors will scour its statement, due at 1800 GMT, for any hints on the timing of future rate hikes.

Stronger US economic data of late has revived expectations of a Fed hike and markets see roughly an even chance of a rate rise in December.

Two-year U.S. Treasury yields, seen most sensitive to higher rates, held close to four-week highs. By contrast Japanese two- and five-year government bond yields hit record lows of minus 0.37 and minus 0.38% respectively.

German 10-year Bund yields, the benchmark for euro zone borrowing costs, fell 1.2 basis points to just above minus 0.10%.

Oil prices fell, staying close to near three-month lows hit earlier this week on concerns about a glut of some products and slowing economic growth.

Brent crude traded down 10 cents a barrel at $44.77. It has fallen some 15% since hitting an eight-month high in early June.

Gold held steady at $1,319 an ounce.