Asian shares and the Euro
extended their rally into a second day on Tuesday, as investors were
buoyed by expectations that European policy makers will outline details
of how they will leverage a bailout fund so as to avert contagion in
sovereign debt markets.
Asian Shares
MSCI's broadest index of Asia Pacific shares outside Japan rose 1.6 percent, adding to Monday's jump of more than 2 percent. The index hit a seven-week low last Friday. Japan's Nikkei closed up 2.3 percent, moving further away from two-and-a-half year lows also hit last week.
U.S. stocks snapped a seven-session losing streak on Monday, partly supported by robust holiday sales, helping to buoy some Asian markets with export exposures to the United States, such as Korea and Taiwan, while defensives and beaten-down energy and materials sectors pulled Hong Kong and Shanghai shares higher.
"Some positive sentiment hit the markets which, after a recent steep
decline, were offering good valuations and encouraging temporary buy
back," said Hirokazu Yuihama, senior strategist at Daiwa Capital
Markets.
Asian markets largely shrugged off a French media report citing
several sources as saying Standard & Poor's could change the outlook
of France's top-notch rating to "negative" within the next 10 days but
European share markets were set to dip.
Eurozone finance ministers will meet later on Tuesday to approve
detailed operational rules for the region's bailout fund - the European
Financial Stability Facility (EFSF) - paving the way for the 440 billion
Euro facility to draw cash from investors.
However, with a history of initiatives that fall short of market expectations, analysts at Barclays
Capital warned it would be premature to be confident that Europe's
leaders are close to a solution to the 2-year-old debt crisis.
"So far, European summits have delivered compromise solutions that
have been deemed either less than credible or too complex by markets,"
they said in a note, "The recent round of proposals does not seem any
different and suggests that investors should exercise caution buying
risky assets, especially after a rally that has been aided by light
market positioning."
Italy Auction in Focus
The Euro inched up 0.3 percent to $1.3364 on Tuesday, after rising
more than 1 percent on Monday to a high of $1.3398. The dollar index
measured against six key currencies slipped 0.3 percent.
Commodities, a gauge for investor risk appetite, were steady after
Monday's rally, with gold inching up 0.1 percent above $1,700 an ounce
and oil steadying after a rise of more than $1 on Monday.
"We are fairly cautious, given very few reasons to be optimistic, and
I doubt if optimism can be sustained throughout the week, especially
with many meetings and bond supplies," said Frances Cheung, senior
strategist for Asia ex-Japan at Credit Agricole CIB in Hong Kong.
Germany and France are reportedly working on proposals for a more rapid fiscal integration in Europe ahead of a European Union
summit on Dec. 9 but the European Central Bank has defied calls for a
stepped-up role in helping resolve fiscal problems within the 17-member
Eurozone. Concerns about the ability of the highly-indebted Eurozone
countries to pay off ballooning public debts have made their sovereign
bonds a prime target for market attacks, pushing yields to levels widely
seen as unsustainable.
Market players were closely watching the outcome of this week's
auctions, with up to nearly 19 billion Euros in new bonds expected to be
issued by Belgium, Italy, Spain and France.
Italy plans a 8 billion Euros bond sale later on Tuesday. Ten-year
bond yields were stuck above 7 percent, a level that forced Greece,
Ireland and Portugal to seek international aid.
Tension in the Eurozone money market and banks' reluctance to lend to
each other further intensified on Monday, with three-month Euribor
rates, traditionally the main gauge of unsecured interbank Euro lending
and a mix of interest rate expectations and banks' appetite for lending,
rising to 1.477 percent from 1.475 percent.
Reflecting global market strains, the Bank of Japan
supplied dollars in market operations for the fourth time this month on
Tuesday, providing $100 million in an operation maturing in three
months and $1 million maturing in a week.
