Asia extends gains, dollar gets lift from Fed minutes

By Lisa Twaronite and Shinichi Saoshiro

TOKYO (Reuters) – Asian stocks rose on Thursday, extending the previous session’s gains, while the dollar drew support from minutes of the Federal Reserve’s last meeting showing the U.S. central bank was still on course to hike interest rates this year.

Financial spreadbetters expected Britain’s FTSE 100 <.FTSE> to open 23 to 27 points higher, or up 0.4 percent; Germany’s DAX <.GDAXI> to open 27 to 28 points higher, or up 0.2 percent; and France’s CAC 40 <.FCHI> to open 14 to 15 points higher, or up 0.3 percent.

“After yesterday’s choppy session, the bulls are going to have another attempt at prolonging the rally once more. Overnight, the FOMC minutes weren’t quite as dovish as some bulls had hoped, with the Fed divided over a June hike,” Jonathan Sudaria, a dealer at Capital Spreads, said in a note.

Investors awaited German industrial production figures, as well as the Bank of England’s latest policy decision.

More economists now expect the BoE will stand pat on interest rates until next year as it waits for Britain’s economic recovery and inflation to pick up, according to a Reuters poll published last week.

MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was up 0.8 percent, after touching its highest level since September 2014.

Hong Kong’s benchmark Hang Seng Index <.HSI> surged over 3 percent at one point to fresh seven-year highs, fueled by money inflows from mainland China investors who are seeking cheaper shares after a 60 percent rally in Shanghai in the past five months. The Shanghai Composite Index <.SSE> slumped 1.1 percent.

Japan’s Nikkei <.N225> ended up 0.8 percent at another 15-year high just shy of the 20,000 level, above which it hasn’t traded since April 2000.

“The mood is helped by the fact that foreign investors are coming back to the Japanese market after they turned sellers early this year,” said Hiker Sator, a senior technical analyst at Damian Securities.

Japan finance ministry data showed foreign investors bought a net 1.036 trillion yen of Japanese shares last week, their biggest net buying since early April 2013.

Wall Street posted modest gains overnight after a volatile session following the Fed minutes, which showed officials acknowledged risks from overseas and a weak start to the year at their March meeting. But they remained confident enough in the strength of the economic recovery to continue laying the groundwork for an interest rate hike later this year.

“Federal funds rate futures point towards a rate hike in September or later and this would be positive for the global economy. If the markets had to brace for a June rate hike, that would hit U.S. equities by causing volatility in U.S. debt yields. Global equities, especially those of emerging markets, would be destabilized in turn,” said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

HIGHER U.S. YIELDS BOLSTER GREENBACK

The minutes were in line with comments from Fed officials on Wednesday, who said the central bank could still hike U.S. rates this year. At a Thomson Reuters event Wednesday, New York Fed President William Dudley and Fed Governor Jerome Powell described scenarios in which the central bank could move to hike earlier than many expect, and then proceed in a slow and gradual manner on further rate increases.

U.S. Treasury yields ticked higher after the minutes, lifting the appeal of the U.S. dollar. The yield on the benchmark 10-year Treasury note stood at 1.900 percent in Asian trade, up from its U.S. close of 1.895 percent on Wednesday.

That helped the dollar add about 0.1 percent to 120.25 yen, after it fell as low as 119.65 overnight. The euro fell about 0.2 percent to $ 1.0765 after shedding about 0.3 percent in the previous session.

The dollar index <.DXY>, which tracks the greenback against a basket of six major counterparts, rose about 0.3 percent to 98.217

Crude oil took back some lost ground following a steep plunge overnight triggered by a rise in U.S. stocks and news of record Saudi oil production.

U.S. crude <CLc1> was up 1.1 percent at $ 50.95 a barrel after shedding nearly 7 percent on Wednesday, while Brent <LCOc1> rose about 0.9 percent to $ 56.07.

(Additional reporting by Ayai Tomisawa in Tokyo; Editing by Eric Meijer & Kim Coghill)