Asia stocks rise

Wednesday, 26 January 2011 00:01 -     - {{hitsCtrl.values.hits}}

SINGAPORE (Reuters): Asian stocks rose Tuesday, with the Nikkei gaining more than 1 percent, on optimism that companies will report strong earnings, while the euro held near a two-month high.

The euro could get a further boost if the U.S. Federal Reserve maintains a cautious view of the U.S. economic recovery after a two-day policy meeting Tuesday and Wednesday.

Markets are increasingly speculating that the European Central Bank will lift interest rates ahead of the Fed, after recent tough comments by ECB chief Jean Claude Trichet about the need to keep inflation in check.

Japan’s Nikkei average rose for a second straight session, advancing 1.1 percent, lifted not only by gains in New York and London overnight but by local optimism ahead of major corporate earnings reports.

Exporters including Canon and Kyocera are due to report this week, which could set the tone for earnings season which will last until early February. Canon rose 1.6 percent Tuesday, while Kyocera added nearly 2 percent.

“This isn’t going to be a regular earnings season,” said Masayoshi Okamoto, head of dealing at Jujiya Securities.

“Stocks have risen a lot over the quarter and strong earnings are at least partly priced in by investors, so they will not only want to see the figures for the quarter but also how those firms can sustain growth in the long run.”

The Bank of Japan, ending a two-day policy meeting, kept monetary policy extremely loose as expected, and reviewed its long-term forecasts.

The central bank upwardly revised its consumer price forecast for the fiscal year beginning in April, reflecting the impact of recent rises in commodity prices, and roughly maintained its economic growth forecasts.

The MSCI index of Asian stocks outside Japan rose by 0.6 percent after recording its worst weekly performance in almost two months last week. It is down 1 percent for the month.

Shares of resource companies gained on a rise in industrial metals prices, with the MSCI ex-Japan materials index up 1.1 percent.

Worries about mounting inflationary pressures have spooked some investors into selling out of emerging Asian markets and taking profits after strong rallies in 2010, but rather than leaving the region completely investors are channeling money toward countries seen as better placed to deal with price pressures.

Indonesian bond yields have jumped and stocks have retreated as investors cut their holdings, worried that the country, one of the darlings of emerging market investors in recent years, does not have a tight grip on inflation.

Investors in major emerging markets are also closely watching India’s battle against stubborn inflation, which has been aggravated by surging global commodities prices and domestic supply pressures. The central bank is expected to raise rates for the seventh time in a year at a meeting later Tuesday (0600 GMT).

The euro held near a two-month peak in early Asian trade, hovering around $1.37 and bringing into focus its next resistance level of $1.3742.

The single currency, which has risen 6 percent in the past two weeks, was supported by hopes for a lasting solution to the debt crisis in the euro zone, and talk that the ECB may raise interest rates.

Demand from Asian central banks has also spurred wider buying in the common currency.