Asian shares at four-month highs, dollar up on hopes Singapore easing sets policy trend

By Saikat Chatterjee

HONG KONG (Reuters) - Asian stocks rose to their highest levels in more than four months on Thursday and regional currencies weakened led by the Singapore dollar as hopes grew that more central banks will join the city state in easing monetary policy in the comiing months.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, reaching its highest level since Dec. 2. The index has risen 4.7 percent since Friday, breaking above several resistance levels to signal further gains.

Singapore's central bank on Thursday surprised markets by setting the rate of appreciation of the Singapore dollar policy band at zero percent after data previously showed economic growth stalled in the first quarter.

"The MAS is delivering a strong message by returning policy to post-GFC settings," Westpac strategists wrote in a note, referring to the Global Financial Crisis.

"As one of the world's most trade-sensitive economies, Singapore's concern over a "less favourable external environment" should be noted by the likes of the RBA and RBNZ," they said referring to the central banks of Australia and New Zealand.

Notwithstanding the optimistic trade data out of China on Wednesday, Singapore's policy decision is yet another reminder of the headwinds facing the global economy.

Earlier this week, the IMF cut its global growth forecast for the fourth time in the past year, citing a bunch of factors including chronic weakness in advanced economies.

Stock markets across the region were a sea of green led by Japan and Hong Kong as investors interpreted this as sign of more policy easing by the trade-dependent economies of South East Asia and a shallower trajectory of interest rate increases by the U.S. Federal Reserve in the coming months.

Overnight, U.S. S&P 500 Index gained 1 percent to a four-month high after JPMorgan Chase's first quarter earnings fell less than expected, helping to lift the S&P 500 financial sector 2.2 percent.

That came after bank shares in Europe did even better, surging 6.3 percent, as investors scooped up Italian banks, re-evaluating a state-orchestrated plan to set up a 5 billion euro ($5.7 billion) fund to shore up weaker banks.

Bond yields predictably swung lower with the yield on the 30-year Japanese government bond falling a record low of 0.385 percent. U.S. debt followed with yields on ten-year notes easing to 1.75 percent.

In the currency markets, rising risk appetite and the hunger for yield spurred the dollar to turn the table against the lower-yielding euro and yen.

The euro slipped 1.0 percent, its biggest fall in about 5 months, on Wednesday and last traded at $1.12605, off Tuesday's six-month high of $1.1465.

The dollar bounced back against the yen to 109.49, extending the recovery from its 17-month low of 107.63 touched on Monday despite softer-than-expected U.S. producer prices and retail sales numbers last month.

In Asia, the Singapore dollar weakened 0.6 percent after the city state's central bank eased its policy, triggering a downdraft in other Asian currencies. The Korean won fell more than one percent against the greenback in early deals.

Oil futures hit four-month highs in choppy trading on Wednesday before edging back as comments from Russia's energy minister added to doubts a producer meeting set for Sunday in Doha to discuss freezing output would yield a positive outcome

Prices fell after Reuters reported that Russian oil minister Alexander Novak told a closed-door briefing that a deal on an oil output freeze scheduled to be signed this month in Doha will be loosely framed with few detailed commitments.

"The biggest focus for now is the Doha meeting. I suspect an agreement will be difficult and we could see some setback," said Takeru Ogihara, chief strategist at Mizuho Trust Bank.

Brent crude futures fell 1.4 percent in early Asian trade on Thursday to $43.58 per barrel after having scaled a high of $44.94 on Wednesday.

(Additional reporting by Hideyuki Sano in TOKYO and Vidya Ranganathan in SINGAPORE; Editing by Simon Cameron-Moore)