By Hideyuki Sano
TOKYO (Reuters) - Global shares and oil prices extended their rebound on Tuesday on mounting speculation policymakers around the world would move to ease the economic fallout from the spreading coronavirus.
The European Central Bank on Monday joined the chorus of central banks signalling a readiness to deal with the growing threats from the outbreak.
Earlier messages from the U.S. Federal Reserve that it was prepared to act weighed on the greenback against a basket of currencies.
The improved confidence supported U.S. S&P 500 futures (ESc1), which rose 0.5% in early Asian trade on Tuesday, a day after the S&P 500 (SPX) gained 4.60%, the biggest gain since December 2018.
Japan's Nikkei (N225) jumped 1.6% while MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) gained 0.8%.
South Korea's Kospi (KS11) added 2.4% and Australian shares (AXJO) advanced 1.8% ahead of an expected rate cut by the Reserve Bank of Australia.
The rout in global stocks last week had already prompted Fed Chair Jerome Powell and Bank of Japan Governor Haruhiko Kuroda to flag a readiness to move.
Money market pricing shows traders now expect a 100% chance of a 0.25 percentage point cut to the current 1.50%-1.75% target rate at the Fed's March 17-18 meeting as well as a 0.10 percentage point cut to the ECB's key rate at March 12 meeting.
G7 finance ministers are also expected to hold a conference call on Tuesday (1200 GMT), sources said, to discuss measures to deal with the economic impact of the coronavirus outbreak.
"There are hopes that G7 countries will take some sort of coordinated actions to fight the virus, possibly including fiscal spending," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.
The frantic moves by policymakers reflected growing fears that the disruption to supply chains, factory output and global travel caused by the new epidemic could deal a serious blow to a world economy trying to recover from the U.S.-China trade war.
Coronavirus is now spreading much more rapidly outside China than within the country, leading the world into uncharted territory, although the World Health Organization (WHO) has so far stopped short of calling it a pandemic.
In the United States, six people in the Seattle area have died of the illness caused by the new coronavirus, as authorities across the country scrambled to prepare for more infections.
RISK RETURNS
The rebound in global stock prices saw U.S. bond yields roll back some of their sharp falls.
The 10-year U.S. Treasuries yield retreated to 1.155% (US10YT=RR) from a record low of 1.030% marked on Monday. The rate-sensitive two-year notes yield (US2YT=RR) jumped back to 0.903% from Monday's 3 1/2-year low of 0.710%.
Still, the 10-year and two-year yields are down about 40 and 50 basis points, respectively, from about two weeks ago.
April Fed funds rate futures still price in about 80% chance of a 0.50 percentage point cut.
Expectations of Fed rate cuts prompted investors to cut their exposure to the dollar.
Against the yen, the dollar traded at 108.31 yen , off a five-month low of 107 set on Monday.
The euro stood at $1.1139 (EUR=), having hit an eight-week peak of $1.1185.
The Australian dollar fetched $0.6533 , about a cent above an 11-year low of $0.64345 set on Friday. Australia's central bank is widely expected to cut the policy interest rate to 0.5% from 0.75%, already at a record low.
Oil prices bounced back further after a jump of more than 4% on Monday, reversing an early decline to multi-year lows.
Hopes of a deeper output cut by the Organization of the Petroleum Exporting Countries and central banks' policy measures countered fears of slower growth.
U.S. West Texas Intermediate (WTI) crude futures (CLc1) rose 2.7% to $48.01 a barrel, up sharply from Monday's low of $43.32 a barrel, which was the lowest since December 2018.
While the coronavirus continues to dominate investor attention, focus has also swung to Super Tuesday in the United States, the biggest day in the Democratic primary elections to choose a challenger to President Donald Trump.