tokyo 08 23, 2012, 08:50 IST
Asian shares rose on Thursday after the Federal Reserve's minutes raised market hopes of more monetary stimulus, but a weak reading from a survey of Chinese manufacturing activity trimmed gains.
The private HSBC Flash China manufacturing purchasing managers index (PMI) fell to 47.8 in August, its lowest level since November, from a final reading in July of 49.3, as new export orders slumped and inventories rose.
The report signalled that a persistent slowdown in economic growth has extended deeper into the third quarter, and followed data showing recovery in export-reliant Japan, South Korea and Taiwan has been threatened by the sluggish Chinese growth and the slump in the euro zone economy.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.6 percent, retreating from a 0.8 percent gain before the Chinese data. Shares in Australia, which depends on China as its single largest export market, were up 0.1 percent, after the Chinese PMI eroded a 0.4 percent gain prior to its release.
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Japan's Nikkei stock average was fragile, barely changed as sentiment was weighed by the yen's firmness against the dollar.
U.S. stocks erased most losses, Treasury bond prices rose and the dollar fell after the minutes from the July 31-August 1 Fed meeting showed it was likely to deliver another round of monetary stimulus "fairly soon" unless incoming data points to "substantial and sustainable" strengthening in the recovery.
The liquidity boost delivered by such a move would be likely to increase money flows into riskier assets such as equities and commodities, while the monetary easing might also be expected to weaken the dollar.
The euro touched a fresh seven-week high of $1.2553 on Thursday. The dollar traded at 78.55 yen, off Wednesday's low of 78.27 yen. The Australian dollar fell to $1.0505 from around $1.0533 before the China PMI.
While asset prices were still broadly supported by the Fed's minutes, there were conflicting views on how much stimulus the Fed may decide on.
"The data released since the August 1 conclusion does little to sway the 'substantial and sustainable' requirement," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in a note.
"It seems that the stage is now set for (Fed Chairman Ben) Bernanke to expand at his Jackson Hole meeting at the end of this month upon the discussions that took place inside the Fed at the start of August," he said, referring to the gathering of central bankers and economists.
Speculation about more stimulus drove spot gold up to a 3-1/2 month high of $1,662.01 an ounce on Thursday and copper up to a one-month high of $7,675.75 a tonne. Copper trimmed gains after the Chinese data.
Oil rose, with Brent crude rising 0.7 percent to $115.73 a barrel and U.S. crude up 0.6 percent to $97.86.
FED SPURS ADJUSTMENTS
The Fed's last policy meeting preceded a slew of positive reports including retail sales, industrial output and non-farm payrolls, which boosted the dollar and lifted 10-year Treasury yields to a three-month high above 1.85 percent last week, up sharply from a record low 1.38 percent hit on July 25.
The positive economic reports have scaled back expectations somewhat, but hopes remain for the Fed to take further stimulus at its September 12-13 meeting, ranging from a third round of bond buying known as quantitative easing to extending the period of very low interest rates beyond 2015.
"Since the meeting of the minutes, the environment has changed to make it doubtful if the Fed will take as aggressive an action as markets appear to have taken from the minutes," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo, noting positive U.S. data, improving mood surrounding Europe's woes and surging grains prices.
Deepening quantitative easing could fuel inflationary pressures as money will likely flow into grains, further pushing up prices of U.S. corn and soybean which hit record highs this summer due to the country's worst drought in 56 years, Saito said.
"It may still take some stimulus but that has already been anticipated, and the Fed has merely kept such expectations intact. Players probably sold the dollar to adjust their positions ahead of meetings surrounding Greece," said Saito.
Market sentiment has also been underpinned after the ECB suggested it would come up with measures to contain surging yields of indebted Spain and Italy.
While market focus has mainly shifted to Spain, the verdict on the fate of deeply troubled Greece has yet to be delivered.
Greek Prime Minister Antonis Samaras is seeking to convince other European officials that his country should be given more time to meet targets for deficit cuts, warning of bankruptcy if the money does not arrive.
Asian credit markets firmed slightly, tightening the spread on the iTraxx Asia ex-Japan investment-grade index by two basis points.
(Editing by Michael Perry and Alex Richardson)