Asian stocks bolted higher on Monday after strong U.S. jobs data and a drop in oil prices increased confidence in the U.S. economy, although the dollar fell to a two-month low against the euro on profit taking. Shares rose more than two percent in Japan, Hong Kong, South Korea and Taiwan and hit two-year highs in Australia after the employment data helped lift U.S. equities on Friday. A surprisingly high number of new non-farm jobs reinforced expectations that U.S. interest rates will rise this month, pushing Japanese government bond yields to multi-month highs. U.S. Treasury yields also rose in Asian trade. Oil prices continued to ease in reaction to OPEC's pledge to increase supply, while gold firmed as the dollar weakened.
Tokyo's Nikkei stock average rose as much as 2.9 percent to a one-month high, led by banks such as UFJ Holdings Inc, which rallied four percent. The Tokyo market ended morning trade up 2.5 percent at 11,408.19. Investors flocked to stocks in domestic-oriented firms such as banks and insurers on hopes upcoming economic indicators would confirm a steady recovery, analysts said. Japan releases revised GDP figures on Wednesday and machinery orders on Thursday. "A slew of upbeat economic data released recently made investors believe that the government will revise upward the (January-March) GDP figures to six-percent level," said Fujio Ando, a senior managing director of Chibagin Asset Management.
BANK SHARES JUMP
UFJ rallied after a media report the bank, Japan's fourth-biggest, had begun informal talks with the state corporate rescue body to revive the fortunes of several of the bank's large borrowers. At around 0210 GMT, an MSCI index of shares elsewhere in the region was up 1.9 percent. Stock indices were up 2.2 percent in Hong Kong, 2.5 percent in Seouland 2.8 percent in Taipei. Australia's benchmark was 0.4 percent higher. The jobs data showed strength in the U.S. economy but, for the most part, did not change expectations that the Federal Reserve will raise interest rates by just a quarter percentage point to 1.25 percent at a meeting on June 29-30. The U.S. economy added 248,000 new non-farm jobs in May, above the median estimate of 216,000 in a survey. April's number was also revised up to 346,000 new jobs from 288,000, surprising the market. "The U.S. jobs data was stronger than expected, but not exactly spectacular, and not enough to change expectations that the Fed will raise rates by 25 basis points this month," said Toshiaki Kimura, forex manager at Mitsubishi Trust and Banking.
"We're seeing a bit of profit-taking on the dollar now, but I don't expect this sell-off to last for long." The euro rose to $1.2335, its highest level in two months and about 0.4 percent above what it was fetching in late New York trade on Friday. The dollar was at around 110.55 yen, versus 111.16 yen late on Friday.
BOND YIELDS RISE
Bond prices fell as investors grew more certain of a U.S. rate rise. U.S. Treasuries extended sharp losses from Friday, pushing the yield on the benchmark 10-year note up to 4.79 percent from 4.78 percent. The yield on 20-year Japanese government bonds (JGBs) briefly touched a 28-month high of 2.21 percent and other maturities also hit their highest levels in months. Some traders speculated the Fed may take aggressive action in the wake of the jobs data. "The U.S. economy is stronger than I expected," said Yuuki Sakurai, general manager of investment planning at Fukoku Mutual Life Insurance Co. "People are now beginning to say that the Fed could raise rates by 50 basis points this month, not 25." U.S. stocks were expected to hold to narrow ranges ahead of presentations by Fed chief Alan Greenspan on Tuesday and Thursday.
"What's the Fed's timetable on tightening? We know it's going to happen but how much, and will we see tightening sooner or later? That's going to be the highlight of the week," said Bill Strazzullo, chief market strategist at State Street Global Markets in Boston. On Friday, The Dow Jones industrial average rose 0.5 percent and the Nasdaq Composite Index added 0.9 percent. U.S. crude oil futures inched down, extending last week's slide from record highs after OPEC decided to raise its production quotas and an increase in U.S. oil inventories. U.S. crude for July delivery was 0.1 percent lower at $38.40 a barrel. Gold rose to $391.50 an ounce from $390.80 in New York on Friday.///