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GLOBAL MARKETS-Asia shares rally as China cools money rates, yen slips

Source: Reuters - Tue, 21 Jan 2014 05:21 AM
Author: Reuters
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* Nikkei on the rise as yen falls, dollar gains on Fed speculation

* China money rates ease after PBOC floods market with cash

* New Zealand nearer to rate hike as inflation creeps higher

By Wayne Cole

SYDNEY, Jan 21 (Reuters) - Asian markets sprang higher on Tuesday as Japanese stocks rebounded and Chinese money rates eased, while the U.S. dollar got a fillip from a report the Federal Reserve would again trim its bond buying next week.

A drop in the yen helped Tokyo's Nikkei rally 1.5 percent and dragged up markets from Seoul to Singapore. MSCI's broadest index of Asia-Pacific shares outside Japan swung round to be 0.5 percent firmer.

U.S. stock futures were also pointing higher, with the S&P 500 up 0.4 percent and the Dow 0.5 percent.

Investors kept a wary eye on Chinese money markets after the People's Bank of China (PBOC) announced a surprise injection of funds on Monday aimed at curbing a recent spike in rates.

The central bank followed up on Tuesday by adding 255 billion yuan ($42.13 billion) to markets, the largest single-day injection since February 2013.

"Such a huge injection," exclaimed one trader at a joint-stock bank in Shanghai. "Now we can get through the upcoming Lunar New Year holiday in peace."

The move duly pulled the 7-day bond repurchase rate down to 5.53 percent, from 6.60 percent on Monday, and boosted Shanghai stocks 0.6 percent.

Dealers assume the authorities were attempting to avoid a repeat of the severe cash crunch that roiled markets in June.

Likewise, investors will be watching liquidity operations by the European Central Bank later Tuesday to see if it acts to correct a recent sharp rise in money rates, a tightening of conditions that could retard the region's recovery.

The euro edged back a touch to $1.3544, not far from Monday's two-month trough of $1.3508.

The dollar hopped up to 104.66 yen when the Wall Street Journal reported the Fed is on track to trim its bond-buying program for the second time in six weeks, paring back by $10 billion to $65 billion a month.

A lacklustre U.S. jobs report had not diminished the central bank's confidence in the economy, wrote Fed watcher Jon Hilsenrath. Investors suspect he has an inside line to policy makers and put a lot of weight on his opinion.

It was enough to nudge 10-year U.S. Treasury yields up a couple of basis points to 2.84 percent, following the U.S. market holiday on Monday.

EARLY RISER

The early mover in Asia had been the New Zealand dollar which surged half a U.S. cent to $0.8320 after inflation data came in higher than expected and fuelled already intense speculation of a rate rise.

Annual inflation ticked up to 1.6 percent in the fourth quarter of 2013, the fastest pace in 21 months.

The country of 4.5 million is undergoing an economic revival, thanks in large part to China's insatiable demand for its dairy exports, and particularly baby formula.

That has greatly lessened the need for rates to remain at record lows of 2.5 percent and led markets to price in a series of hikes this year.

The Reserve Bank of New Zealand next meets on Jan. 30 and if it does not move then, an increase is considered virtually certain for March.

Attention will also be on Turkey's central bank as a crumbling currency piles pressure on for a hike in interest rates at its policy meeting on Tuesday.

The lira has hit a string of record lows while the cost of insuring Turkish debt spiked to 18-month highs as a government corruption scandal undermined investor confidence.

In commodity markets, gold steadied at $1,252.41 an ounce, after hitting its highest level since mid-December at $1,259.85 on Monday.

U.S. crude futures slipped as supply worries eased after world powers and Iran took another step to end a decade-long dispute over Tehran's nuclear programme.

Crude futures fell 37 cents to $94.00 a barrel, while Brent oil for March delivery edged up 8 cents to $106.43.

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