Asia stocks supported by Wall Street, but China drags

TOKYO (Reuters): Asian stocks were supported on Thursday by robust corporate earnings that helped Wall Street quell concerns about the surge in US bond yields. However, sagging Chinese shares limited the upside potential of the market.

Spreadbetters expected European stocks to open higher off the back of firm US stocks, pointing to a rise in Britain’s FTSE of 0.1%, an increase in Germany’s DAX of 0.4% and in France’s CAC of 0.4%.

The dollar hovered near 3-1/2-month highs against a basket of currencies, supported by the rise in US long-term debt yields to a four-year peak.

South Korea’s KOSPI climbed 1.3%, with tech shares buoyed by news of a record quarterly profit from Samsung Electronics.

The region’s other gainers included Japan’s Nikkei, which rose 0.5% and Thai and Malaysian stocks.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.15%, as weaker Chinese stocks weighed on the market.

The benchmark Shanghai Composite Index fell 0.9% and the blue-chip CSI300 index dropped 1.4% as tech shares came under pressure following news that US prosecutors have been investigating if China’s Huawei violated US sanctions on Iran.

The Dow Jones Industrial Average rose 0.25% on Wednesday, ending five consecutive sessions of losses, and the S&P 500 gained 0.18% on optimism over a spate of upbeat earnings that managed to offset jitters about rising US bond yields.

The rise in the 10-year US Treasury yield to a four-year peak above 3% had weighed on stocks amid concerns higher costs to borrow could dampen corporate profits.

Nonetheless, the broader equity market reaction to the latest jump in US yields appeared to be more measured compared to February, when a similar spike in rates sent stocks tumbling.

“The equity markets slid sharply in January and March in response to the rise in Treasury yields. But the Federal Reserve signalled in March that its rate hikes would be gradual,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“Expectations towards US rate hikes being gradual are enabling equities to take the current yield rise in stride.”

The 10-year yield rose to 3.035% on Wednesday, its highest since January 2014. The yield has climbed on expectations of a steady US economic expansion, accelerating inflation and concerns about increasing debt supply. It last stood at 3.031%.

US yields have dragged up their European counterparts, with 10-year German bund reaching a six-week high of 0.655% and its British Gilt equivalent setting a nine-week peak of 1.57% this week.

The rise in borrowing rates has also supported the dollar. The dollar index of a basket of six major currencies was steady in Asia at 91.157 and within reach of 91.261, its highest since Jan 12 scaled on Wednesday.

The dollar has risen without pause through much of the past week, in part helped by an easing of concerns over a US-China trade dispute.

The euro fetched $1.2175 after sliding to a 1-1/2-month low of $1.2160.

The immediate focus for euro traders is the European Central Bank monetary policy decision due at 1145 GMT. The ECB is widely expected to keep policy unchanged but its comments will be followed closely for any hints of when it might scale back its massive monetary stimulus.

“We expect no changes to the ECB’s setting of monetary conditions or its guidance. Some people in the market will be disappointed by that, but ECB President (Mario) Draghi has been starkly clear about the Governing Council’s position,” wrote Carl Weinberg, chief international economist at High Frequency Economics.

“Conditions prerequisite for a change in the central bank’s stance have not been met.”

The dollar was little changed at 109.340 yen after going as high as 109.490, its strongest since Feb. 8.