Asian shares and the euro gained on Dec. 7 on hopes
that the threat of mass credit rating downgrades will pressure European
leaders to come up with a convincing framework for resolving the euro
zone debt crisis at a crucial summit later this week.
European shares were expected to resume their brisk 1-1/2
week rally, interrupted on Dec. 6, and S&P 500 futures pointed to a
firmer start on Wall Street.
Standard & Poor's, which on Dec. 5 told 15 euro zone
member nations that it may cut their debt ratings, fired a second shot
less than 24 hours later, threatening on Dec. 6 to cut the credit rating
of Europe's financial rescue fund.
The rating action weighed on stocks initially, but sentiment
improved after the Financial Times reported that European leaders would
discuss boosting the firepower of the euro zone bailout fund, a move
crucial to effectively containing the contagion of the crisis to bond
markets.
"People are more optimistic that the news out of the Dec. 9
meeting would be more upbeat, so it's a bit of a reaction to that," said
Guy Stear, head of research with Societe Generale in Hong Kong, adding
that the markets were in a technical bounce from yesterday's moves.
MSCI's broadest index of Asia Pacific shares outside Japan rose 1 percent, while the Nikkei stock average added 1.7 percent.
Financial spreadbetters predicted Britain's FTSE 100 to open
as much as 0.4 percent higher, Germany's DAX to gain as much as 0.7
percent and France's CAC-40 to rise as much as 0.5 percent.
The euro inched up 0.2 percent to $1.3420, off its one-week
low near $1.3330 touched on Tuesday, with guarded optimism ahead of the
European Union summit on Friday and the European Central Bank's policy
meeting on Dec. 8.
Market players expect the central bank to announce a rate cut
as well as expanded liquidity measures to ease strains in the banking
system.
"Until the EU summit the risk is to the upside on hopes for a
European breakthrough," said Dariusz Kowalczyk, senior economist and
strategist for Asia ex-Japan at Credit Agricole CIB in Hong Kong.
In the latest evidence of the euro zone debt crisis affecting
the global economy, a Reuters poll on Wednesday showed Japan's
manufacturers turned pessimistic for the first time in six months,
boding ill for the fragile recovery from a devastating earthquake and
tsunami in March.
Annual export growth rate in China, a big exporter to Europe,
slowed in November from October and it will face a "severe export
situation" in 2012, officials said. China is due to release its November
trade data on Saturday.
EUROPE MAKING PROGRESS
European leaders are striving to forge an agreement at
their summit to enforce fiscal discipline, and France and Germany want
to change EU rules to impose penalties on states that exceed deficit
targets -- both measures aimed at staving off further market attacks on
highly indebted and vulnerable economies.
European Council President Herman Van Rompuy, who will chair
the EU summit, said tighter budget oversight sought by Paris and Berlin
could be achieved quickly with only minor tweaks to EU treaties, raising
hopes for a swift implementation of the measure to help restore market
confidence.
There also appeared to have been some progress on bolstering
the firepower of the region's rescue fund, some 40 percent of which has
already been committed to bail out Greece, Ireland and Portugal.
Euro zone officials said the leaders may decide on Friday to
raise the combined lending limit of their temporary and permanent
bailout funds.
Guarded optimism helped firm Asian credit markets, with
spreads on the iTraxx Asia ex-Japan investment grade index narrowing
marginally, while risk sensitive oil and copper eked out gains.
Brent crude steadied above $110 and U.S. crude nudged up 0.2
percent. Copper rose 0.7 percent to $7,886.50 a ton and gold also edged
up 0.1 percent.
"A lot of short positions are being taken off before the
event but no one is really putting on risk. Eyes will remain on
headlines," said a Singapore-based trader with an Asian bank.
