Tuesday, 20 December 2011

Asian stocks, euro edge up; efforts to tackle debt crisis falter

TOKYO: Asian stocks and the euro edged up on Tuesday, but sentiment remained fragile on concerns that efforts to contain the euro zone debt crisis were faltering and tougher rules to strengthen banks' capital would further undermine their profits.

The mood in Asian markets was already risk-averse, after the death of North Korea leader Kim Jong-il raised fears of regional instability and prompted a sell-off in riskier assets on Monday as investors switched money into the safe-haven dollar.

Market players said thin pre-holiday trade may exaggerate price swings, but further heavy selling was unlikely until there was another catalyst, such as European sovereign ratings cuts.

MSCI's broadest index of Asia Pacific shares outside Japan reached an intraday high of up 0.7 per cent on Tuesday, after sliding as much as 2.9 per cent the day before. South Korea's benchmark index outperformed with a 0.7 per cent rise, after plunging as much as 5 per cent on news of Kim's death.

Tokyo's Nikkei share average ended up 0.5 per cent, moving away from Monday's three-week low.

European stocks were seen weak, with financial spreadbetters expecting London's FTSE to open down 0.2 per cent, Frankfurt's DAX down 0.3 per cent, and Paris' CAC-40 to start 0.2 per cent lower.

Kim's death triggered immediate nervousness in northeast Asia, with South Korea stepping up its military alert, while Beijing, Pyongyang's neighbour and only powerful ally, affirmed its close ties. North Korea appears to have identified Kim's youngest son, Kim Jong-un, as his successor.

"Developments overnight helped ease some risks of immediate disorder ... triggering a rebound across the markets, which were spooked and overshot yesterday," said Makoto Noji, senior strategist at SMBC Nikko Securities.

"But it's nothing more than buying back in oversold markets, given very little positive news to recover confidence," he said.

On the other hand, the sell-off induced by European debt woes has driven valuations of some Asian shares attractively low, including Chinese banks, while signs of an improving US economy even if Europe faces downside risks prompted some US money managers to boost equity holdings.