Asia stocks set for biggest weekly rise in three months

Saturday, 5 March 2011 00:01 - - {{hitsCtrl.values.hits}}

HONG KONG (Reuters): Asian stocks were poised for their best weekly gains in three months as market players hunted for bargains while the euro perked up after the European Central Bank signaled a rate hike as early as next month.

Friday’s gains brought stocks to near levels since the Libyan crisis erupted, indicating markets have been largely resilient to oil’s 12 percent surge in the past two weeks.

A reasonably strong correlation between Asian equities and oil shows both track the broad growth story except for periods when markets have grown nervous of a price shock and the resulting spillover impact on inflation.

The region is a big importer of oil.

But the pull-back in oil from 2-1/2 year highs following two days of strong gains that sent a key technical indicator to its most overbought level in more than five years for Brent crude alleviated such concerns.

A strong Wall Street close and hopes that U.S. jobs data due later may show strong gains and reinforce expectations of a steady improvement in the world’s biggest economy boosted stocks with Tokyo .N225 and Seoul .KS11 leading gains.

But further gains on Wall Street looked difficult with the S&P 500 Index .SPX set to run into strong resistance around the 1,340-60 zone.

The broader MSCI index of Asia-ex Japan stocks .MIAPJ0000PUS rose more than a percent, extending its weekly gains to nearly three percent.

“Substantial gains are expected in morning trade on hopes for good jobs data in the U.S., but the market may trim gains toward the close because investors remain cautious until they actually see the figures,” said Shinichiro Matsushita, a market analyst at Daiwa Securities.

The median estimate is for a gain of 185,000 jobs, according to economists polled by Reuters, but market sentiment was leaning toward a number above 200,000, traders said.

Notwithstanding the Libyan crisis, Asian markets have generally underperformed this year as inflows into emerging market funds have slowed sharply due to concerns of inflation and crowded positioning in some of the region’s markets.

But the latest oil driven sell-off has cleaned up some of the technical positioning and enhanced the attractiveness of certain markets such as Korea, according to Barclays Capital strategists.

Foreign investors were net buyers for a second straight day in the stock market, the strongest since January.

Gains in stocks diminished the safe-haven appeal for gold and U.S. Treasuries with two-year debt yields rising by as much as eight basis points to 0.77 percent.

In currency markets, the euro paused after a sharp rally overnight after the European Central bank signaled an interest rate hike as early as April.

The single currency jumped to near four-month highs of $1.3976 and last traded at $1.3959.

Against the yen, the euro hit four-month highs at 115.17 and last stood at 115.01.

“We see scope for rates to go up significantly further this year, beyond the hike now widely expected in April,” said Kenneth Wattret, analyst at BNP Paribas.

The pullback in oil and hawkish rhetoric from the ECB tarnished safe-haven demand for gold which snapped a four-day rally. Silver fell more than a percent.

Asian currencies were generally higher after Beijing set a record high mid-point for the second day, indicating authorities were using the yuan to help fight high inflation.