Asian shares at nine-month highs as oil prices, Fed hike views strengthen

By Saikat Chatterjee

HONG KONG (Reuters) - Asian stocks climbed to nine-month highs on Thursday, helped by a recovery in global oil prices, while the dollar strengthened against the safe-haven yen on resurgent expectations of a U.S. interest rate hike this year.

European shares are expected to buck the trend and open lower before a European Central Bank meeting later in the day at which the ECB is expected to keep rates on hold.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) was up 0.2 percent, its highest level since October 2015 after earnings overnight helped push both the Dow Jones Industrial Average (DJI) and the S&P 500 (SPX) to record highs. It has gained 10 percent over the last month.

Leading regional gainers was Japan's Nikkei stock index (N225), which rose 1 percent, aided by a weaker currency and growing expectations of fresh government stimulus.

Several media such as Mainichi Shimbun and Kyodo News Agency reported that the Japanese government is to compile a stimulus package of at least 20 trillion yen to help the economy emerge from deflation and fend off possible adverse effects of Brexit.

"What the market wants now is both fiscal and monetary policy and such expectations are getting higher," said Hikaru Sato, a senior technical analyst at Daiwa Securities.

Portfolio inflows to emerging market assets rose to the highest level in nearly three years last week, according to the latest survey by the Institute of International Finance.

Malaysian stocks (KLSE) led the region's losers with a 0.4 percent decline following news the U.S. Justice Department filed lawsuits linked to scandal-ridden state fund 1MDB.

In currency markets, higher U.S. Treasury yields, particularly shorter-dated bonds, supported the dollar. Market expectations of a U.S. Federal Reserve rate hike this year dropped significantly after Britain's vote to leave the European Union but have since picked up again as market anxieties receded.

The two-year Treasury yield was 0.71 percent compared with 0.53 percent at the start of the month.

The dollar rose 0.2 percent to 107 yen after climbing as high as 107.460 earlier, its highest since June 7 and returning to levels seen before markets were roiled by Britain's vote last month to exit the European Union.

The dollar index, which tracks the greenback against a basket of six rival currencies, hit a peak of 97.323 (DXY) on Wednesday, its highest level since March 10. It was last at 96.99, broadly steady. The euro edged higher to $1.1032 after notching a near one-month low of $1.0980 overnight. The European Central Bank will meet later in the session, and is expected to hold policy steady while perhaps addressing a scarcity of bonds for its 1.7 trillion euro stimulus programme. "The weakness of the euro provides automatic stimulus to the economy, which means the ECB can afford to wait," wrote Kathy Lien, managing director of FX strategy for BK Asset Management.

"So the potential for an initial short squeeze is high if the central bank stands pat and the outlook thereafter will depend on how strong of a message the ECB sends," she said.

Looking ahead, financial leaders from the world's biggest economies will meet in China this weekend, with Brexit fallout and dwindling policy options to boost global growth expected to dominate talks.

Crude oil extended gains in the Asian session. Brent crude (LCOc1) was slightly higher in Asian trading at $47.35 a barrel, after settling up 1 percent, while U.S. crude (CLc1) edged 0.4 percent higher at $45.86 after adding 0.7 percent overnight. Spot gold edged down 0.1 percent to $1,314.08 an ounce after plumbing three-week lows on Wednesday.