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EU summit hopes calm jittery markets

24 October 2011, 09:54

Hong Kong - Asian stocks rose on Monday as data from China helped allay fears of a hard-landing in the world's second-largest economy, while the euro steadied on hopes that Europe's leaders were making some progress towards tackling the region's debt crisis.

At a summit on Sunday, European Union leaders neared agreement on bank recapitalisation and the use of European Financial Stability Facility (EFSF) to stave off a bond market contagion.

Sharp differences remain, however, over the size of losses that private holders of Greek government bonds will have to accept. Final decisions were deferred until a second summit on Wednesday.

A modest pick-up in China's manufacturing sector, which snapped a three-month contraction, provided some relief to risky assets on Monday with Asian stocks outside Japan up 3.4%.

Turnover remained light across Asian exchanges as traders await final details of a possible eurozone solution expected to be unveiled this week.

Funds are positioned defensively, strategists from Citigroup said in a note, with cash levels in Asia ex-Japan portfolios, and managers trimming positions in South-east Asia and adding to defensive sectors such as telecoms.

Better-than-expected GDP data from the US later this week as well as a credible solution to the eurozone's problems could see funds dip back into cyclicals and help sustain Monday's bounce in risky assets.

In Japan, the Nikkei rose 1.4% in early trade. A strong yen, which rose to a record high against the dollar on Friday, is likely to cap gains and keep Japanese stocks trading in a range held since September, with last week's high of 8 911.7 as near-term resistance.

Japan's finance minister put traders on alert for possible currency intervention on Monday after the yen's rise to a record high against the dollar threatens to further squeeze exporters' profits and hold back economic recovery.

The euro was steady at $1.3870, little changed from Friday when it gained 0.8%. Markets were still clinging to hopes that European policymakers were moving a step closer to finding a credible solution to Europe's sovereign debt crisis.

"It doesn't feel to me like we're going to see a big risk rally, but we could easily see this deal done, risk remains relatively well supported, especially if we start thinking of things like another Fed quantitative easing, that'll help keep market focused on a weaker US dollar," said Greg Gibbs, strategist at RBS in Sydney.

Commodity currencies, usually sold off in times of market stress, also held steady. The Australian dollar stood at $1.0336 , versus New York's $1.0331.

In commodities markets, brent crude for December delivery was trading up 0.2% while spot gold extended Friday's gains slightly and was trading at $1 642.29 an ounce. 

- Reuters


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