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UPDATE: Asian Shares Start Week On Upbeat Note; Risks Remain

(Adds detail, quotes, updates/includes market levels)

SINGAPORE (Dow Jones)--Asian shares kicked off the week with solid gains Monday, though volume was light with Japan shut for a holiday and with several big events on the week's slate.

Hong Kong's Hang Seng Index was strong with a 5.3% rise while shares in Indonesia gained 8.7%; Australian markets added 5.1% in a late-day surge.

"The concerns over global credit markets haven't gone yet but the level of worry has eased," said Bualuang Securities strategist Pongrat Ratanatawanananda in Thailand.

Bourses were taking their cue from a rise on Wall Street Friday; the Dow Jones Industrial Average added 1.6% for its first two-session gain since September, though for October it fell 14%.

U.S. stock futures were about 1% higher in screen trade, providing some impetus for Asia, and European spreadbetting firms were calling stocks there to open higher, though analysts were quick to note the week's major risk events: The U.S. presidential election, U.S. ISM manufacturing and non-manufacturing data, U.S. payrolls, and interest rate decisions from central banks in Australia, the U.K. and the eurozone.

The latest Wall Street Journal/NBC News poll showed Sen. Barack Obama with an eight-percentage-point advantage to Sen. John McCain, though this was down from the 10-point edge he held last week.

Some were hoping the end of the election period would bring some certainty to politics and thus to economic policy, with talk of a new fiscal package in the U.S.

"Expectations that the new government will have to get down to the job of turning around the economy may support optimism that the worst is over for holders of equities," said analysts at CIMB in Singapore.

But not everyone was convinced the markets were headed for steadier waters: "We are skeptical of last week's sentiment-driven rally in global equity markets and believe that soft economic data risk could reduce some of their recent gains," said analysts at Barclays Capital.

A senior hedge fund sales trader at a major brokerage in Sydney added: "I think we'll have a bit of a rally, but I don't think we've seen the worst."

In one potentially ominous sign, Baosteel Group Corp. Chairman Xu Lejiang said at an industry conference that Chinese steel demand had fallen sharply in the last few months as a result of a slowing domestic economy and falling export demand.

Australia's S&P/ASX 200 was led by resource stocks and financials, ending at an eight-day high; "We had a positive U.S. lead and we have lagged Wall Street recently," said Tolhurst senior private client adviser Peter Morgan. BHP Billiton ended the day up 6.8% while ANZ was strongest of the major banks, rising 6.6%.

In Hong Kong, various blue chips were higher, but volume was on the thin side; "I won't suggest investors chase stocks right now. It's risky," said Peter Lai from DBS.

HSBC rose 2.7%, ahead of its third-quarter trading update after the market closed.

Korea's Kospi Composite finished with a 1.4% gain, though the index came off its early highs; the government announced it would expand its fiscal spending by KRW11 trillion and likely cut taxes by KRW3 trillion, in a bid to support the economy.

Shipbuilders were firm after weeks of declines with Samsung Heavy up by its daily limit of 15%; bank stocks rose on the government measures with Shinhan Financial adding 5.8%.

Taiwan shares ended with a 2.6% rise on hopes for improved cross-strait ties, given the visit by China's top envoy on Taiwan relations, Chen Yunlin; Chen, in some initial remarks, said improving bilateral financial cooperation was the key task of both sides amid the global financial crisis.

Cathay Financial Holding, Taiwan's largest financial services provider by assets, rose by the maximum 7.0%, while Fubon Financial rose 7.0%.

Singapore's Straits Times Index was up 4.8% by the interval, while Malaysia's main index was 3.3% higher as crude palm oil stocks found some interest; Philippine shares gained 3.8% while Thai markets jumped 7.3%.

Indonesian shares were broadly higher after recent declines, with expectations the central bank would cut interest rates this week; coal miner Bukit Asam jumped 17% while gas and oil company Medco added 17%, too.

India's Sensex was up 4.2% with bank stocks bid after the central bank announced on the weekend a 50-basis-point repo rate cut and a reduction in the cash reserve requirement; ICICI Bank gained 7.6% with SBI 7% higher.

New Zealand shares added 1.3% in quiet trade.

Currency markets were reflecting some risk appetite with the Japanese yen lower in very subdued trade due to the Japan market holiday; the U.S. dollar was at Y99.27 compared to Y98.53 late in New York on Friday, and the euro at Y127.66, from Y125.50.

Traders were looking ahead to the U.S. presidential election Tuesday as a major potential driver for trade this week, along with the central bank decisions.

The Australian dollar was up around US$0.6834 despite some tepid retail sales data for September; Asian currencies were also on the rise against the U.S. dollar.

"Equities markets seem to be saying that we are seeing some kind of normality returning," Westpac chief currency strategist Robert Rennie said; "I think it's really that, more than anything, that is benefiting high-yield currencies and hurting the U.S. dollar."

Government bonds were mostly falling given the gains in share markets; Taiwan government 10-year bond yields were at 1.9850%, from 1.9775% on Friday.

Asian credit default swap spreads narrowed further as equity markets gained, though some warned this wouldn't last, given the global economic slowdown; "we're going to feel that come through. I don't think we've hit the bottom," said a credit analyst at a European bank.

The Markit iTraxx Asia ex-Japan investment-grade five-year index was quoted at 350-415 basis points, from 432.5 basis points on Friday.

Spot gold gained to $733.45 a troy ounce, up $9.75 from New York levels; LME three-month copper was up 2.6% at $4,185 a metric ton on the better mood in equity markets.

Front-month Nymex crude reversed early Globex falls to be $1.11 higher at $68.92 a barrel.

-By Rosalind Mathieson, Dow Jones Newswires; +65-6415-4140; Rosalind.Mathieson@dowjones.com

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November 03, 2008 01:03 ET (06:03 GMT)


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