China stocks at seven-year peaks on stimulus hopes, focus on central banks

By Hideyuki Sano

TOKYO (Reuters) - A rally in Chinese stocks led Asian equities to 7-year highs thanks to expectations of more stimulus from Beijing with stellar earnings from a few U.S. hi-tech giants further underpinning a broadly positive mood.

Some markets were slightly more subdued as the focus shifted to central bank meetings this week in the United States and Japan.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) rose 0.6 percent, led by solid gains in Greater China, with Hong Kong shares (HSI) hitting a seven-year high and Taiwanese shares a 15-year high <.TW11>.

Mainland Chinese shares also soared, with Shanghai composite index rising 2.3 percent to seven-year highs on hopes of more monetary stimulus, infrastructure projects and state firm mergers.

European shares are seen mixed, with spreadbetters expecting 0.2 percent gains in Germany's DAX <.GDAX> and largely flat openings for Britain's FTSE (FTSE) and France's CAC40

Japan's Nikkei slipped 0.2 percent (N225) mainly on the yen's gains.

The rally in Asian equities came after shares in Amazon.com Inc (O:AMZN) and Microsoft (O:MSFT) both jumped over 10 percent on Friday on strong revenues, boosting the Nasdaq Composite index (IXIC) to a record high.

The bull run's dependence on low interest rates in much of the developed world, however, has made investors cautious as the Federal Reserve is expected to raise U.S. interest rates from around zero in coming months.

"Looking at share rallies around the world, I feel the market is becoming a bit complacent about risks. There could be a moment when investors feel fear in the next couple of weeks. The Fed's policy could be a trigger," said Soichiro Monji, chief strategist at Daiwa SB Investments.

A recent run of weak U.S. economic reports, including Friday's business spending data, has pushed back investors expectations on the timing of the first rate hike towards the end of the year.

The Fed's two-day policy meeting ends on Wednesday, and any indication that an earlier tightening is still on the table is sure to ripple through global markets.

The soft U.S. data also helped to keep the dollar near a three-week low against its index basket of currencies.

The dollar index stood at 96.887 (DXY) <=USD> on Monday, having hit a three-week low of 96.755 on Friday.

Against the yen, it eased slightly to 118.97 yen , near its low so far this month of 118.525 touched a week ago.

Speculators are cutting yen short positions, unwinding bets that the Bank of Japan may surprise the markets by further easing monetary policy on Thursday.

The euro stood at $1.0870 , near a three-week high of $1.0900 on Friday, but the common currency was hampered by growing uncertainty over the likely outcome of Greece's negotiations with creditors.

After no deal was reached between Greece and euro zone finance ministers in their meeting on Friday, German Finance Minister Wolfgang Schaeuble hinted on Saturday that Berlin was preparing for a possible Greek default.

"The bailout talk for Greece is coming to a climax... Proposals from Greece do not include important issues such as pension cuts and labour market reforms and are not something the creditors will be able to stomach," said Koji Fukaya, CEO of FPG Securities.

Although the Greek government managed to get municipalities to lend cash in a last-ditch effort, it is seen running out of funds within weeks.

The head of Germany's Bundesbank said on Saturday he had misgivings about granting emergency funding to Greece as the liquidity situation at the country's banks has not improved.

Oil prices held firm as fighting in Yemen helped to boost Brent crude oil prices to a 4 1/2-month high of $65.80 per barrel on Friday. They last stood at $65.20, little changed on the day.