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Wednesday, 29 October 2014

Asian shares soar to one-month high on earnings, Fed optimism

Tokyo Stock Exchange (TSE) staff members work at the bourse at TSE in Tokyo October 16, 2014. REUTERS/Yuya Shino

Asian shares climbed to one-month highs on Wednesday, steered by a robust Wall Street on optimism over corporate earnings and prospects the U.S. Federal Reserve will reaffirm its willingness to wait for an extended period before raising interest rates.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 1.1 percent, led by a 1.8 percent rise in South Korean shares. Japan's Nikkei share average also posted a sizable 1.5 percent increase.

European shares are expected to follow suit, with spreadbetters looking to gains of up to 0.4 percent in Germany's DAX and Britain's FTSE.

U.S. stocks rose more than 1 percent on Tuesday, with the S&P 500 coming less than two percent below its record peak set last month.

The Fed is widely expected to announce on Wednesday it will end its two-year-old bond-buying stimulus, known as quantitative easing three, as the U.S. economy continues to gather momentum.

Still Fed officials have also stressed they are in no hurry to take policy tightening a step further by raising rates from near zero levels due to subdued inflation and the poor quality of a recovery in labour markets.

"There are some views that the tapering process could be delayed to run through the rest of this year, but it is more likely that the Fed will maintain its current stance of exercising prudence in consideration of any rate hike," said Lim Dong-rak, an analyst at Hanyang Securities.

Upbeat U.S. earnings so far have also eased worries that corporate profits might be squeezed by sluggish global growth.

With 245 companies in the S&P 500 having reported earnings so far for the third quarter, 73.5 percent have beat analyst expectations, according to Thomson Reuters. Over the past four quarters, 67 percent of companies have beat estimates.

Still, Facebook Inc shocked investors after the market close on Tuesday, warning of a dramatic increase in spending in 2015 and projected a slowdown in revenue growth this quarter, falling 8.2 percent in after hours trading.

U.S. economic data published on Tuesday was mixed. But a rise in consumer confidence to a seven-year high gave stock bulls enough reason to maintain their optimism on the economic recovery.

Separate data showed new orders for capital goods by U.S. businesses fell the most in eight months in September.

The data dented the U.S. dollar against a broad range of currencies.

The euro rose to a one-week high of $1.2765 on Tuesday and last stood at $1.2738 in Asian trade. The Canadian dollar climbed to its highest level in more than two weeks against the U.S. dollar of C$1.1165.

The dollar held firmer against the yen, however, as the Japanese currency was held back by speculation that the Bank of Japan will revise down its economic growth forecast in its economic report on Friday.

The dollar traded at 108.18 yen, not far from a two-week high of 108.36 yen hit last week. It had a muted reaction to data showing Japanese industrial output rose 2.7 percent in September, slightly above market expectations.

Meanwhile, the Swedish crown managed to stabilise after sliding to four-year lows on Tuesday, knocked by a surprisingly dovish message from Sweden's central bank.

The Riksbank cut interest rates more than expected to zero and said it would delay tightening policy until the middle of 2016 as it moved decisively to tackle the risk of deflation.

Overnight, one of the factors that may hold back risk sentiment is news that the U.S. Department of Homeland Security was increasing security at government buildings in Washington and other cities because of continuing terror attack threats.


Reference: Hideyuki Sano

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