Asia currencies gain, bond risk drops on fed low rate pledge

Asian currencies and metals gained and the cost to insure against bond losses declined as the Federal Reserve pledged to keep US interest rates low. The euro trimmed yesterday’s gains as concern Europe’s deficit crisis is widening damped demand for the region’s assets.

South Korea’s won rose 0.3 percent to 1,115.30 per dollar and the Malaysian ringgit advanced 0.4 percent to 3.2052 per dollar. About three stocks fell for every two that rose on the MSCI Asia Pacific excluding Japan Index, which lost 0.3 percent to 422.81 as of 10:31 a.m. in Hong Kong. Copper advanced as much as 1.6 percent to $7,520 per metric tonne, gaining for the first time in three days. Japan’s markets are closed for a holiday.

Asian currencies are gaining on expectations growth in the region will be enough to compensate for any slowdown from Europe’s spreading debt crisis and the gradual economic recovery in the US Asia will grow by 7.1 percent this year and next amid demand for manufactured goods and commodities, the International Monetary Fund said in a report today.

“There’s a bit of reprieve in global risk sentiment from the Fed’s comments overnight,” said Suan Teck Kin, an economist in Singapore at United Overseas Bank Ltd “But this is likely to be short-lived as Europe’s sovereign crisis is not over.”

Europe’s common currency fell back toward a one-year low against the dollar after Standard & Poor’s cut Spain’s credit rating yesterday, prompting Germany to call for faster efforts to rescue Greece, which was downgraded to junk this week. New Zealand’s dollar fell as central bank Governor Alan Bollard indicated he may raise interest rates at a slower pace than in previous cycles.

euro Decline

The euro declined 0.2 percent $1.3199 in Tokyo. It touched $1.3115 yesterday, the lowest level since April 28, 2009, before rebounding to $1.3221. The single currency fell to 123.90 yen from 124.32 yen. New Zealand’s dollar dropped the most of the major currencies, slipping 0.7 percent to 71.57 US cents and losing 0.9 percent to 67.16 yen.

“Lingering fears of a further deterioration in the European sovereign debt crisis may weigh on risk sentiment,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd in Wellington. “Against this backdrop, ‘safe-haven’ currencies such as the dollar and the yen may extend their recent gains.”

The won gained after a Bank of Korea survey showed manufacturers are the most upbeat they’ve been in seven years. The central bank said an index measuring expectations for the month ahead climbed to 107, the highest level since 2002.

Merkel Pledge

The cost of protecting Asian and Australian bonds from default declined after German Chancellor Angela Merkel pledged to step up efforts to overcome the Greek fiscal crisis, saying in Berlin yesterday that it’s “clear negotiations between the Greek government, the European Commission and the IMF need to be sped up.”

The Markit iTraxx Australia index of credit-default swaps dropped 8 basis points to 90.5 basis points as of 10:52 a.m. in Sydney, the risk benchmark’s biggest decline since November 30, according to Westpac Banking Corp The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 6 basis points to 104.5 as of 8:50 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show.

Investors are taking heart from “Germany’s recognition of the fact they need to speed up efforts to bring a rescue package of some sort,” said James Williams, head of credit trading with Australia & New Zealand Banking Group Ltd in Sydney.

China’s Shanghai Composite Index gained 0.6 percent. South Korea’s Kospi index sank 0.4 percent and Australia’s S&P/ASX 200 Index dropped 0.8 percent.

ANZ Shares Drop

Suning Appliance Co., China’s biggest electronics retailer by market value, climbed 2.6 percent to 11.27 yuan in Shenzhen, south China, after saying first-quarter profit increased 86 percent from a year earlier.

China Merchants Bank Co. gained 2.2 percent to 14.12 yuan in Shanghai after first-quarter profit rose 40 percent.

Australia & New Zealand Banking Group Ltd sank 2.2 percent to A$24.31 in Sydney as its chief executive officer voiced concern over Europe’s debt problems. Separately, ANZ Bank said fiscal first-half profit jumped 36 percent as lending income grew and charges for bad loans fell. Smith confirmed ANZ is considering buying a 51 percent stake in Korea Exchange Bank.

Federal Reserve officials yesterday restated their intention to keep the benchmark interest rate near zero for an “extended period” and said they saw signs of life in the job market.

Jobs Improving

“The labour market is beginning to improve,” the Federal Open Market Committee said in a statement yesterday in Washington, after last month saying it was “stabilising.” Officials also said growth in household spending has “picked up recently.”

Copper for three-month delivery in London traded 0.9 percent higher at $7,465 a tonne by 10:08 a.m. Singapore time on the Fed’s rate pledge.

Corn gained 0.3 percent to $3.65 a bushel, rising for a second day, after China bought more than 100,000 metric tonnes from US exporters for the first time since 2001.

The outpacing of Asia’s economic growth is attracting capital inflows that may cause the region to overheat and lead to the formation of asset bubbles, the IMF said.

“Brighter economic growth prospects and widening interest rate differentials with advanced economies are likely to attract more capital into the region,” the fund said. “Policy makers will need to be attentive to safeguarding the macro economy and financial system against the build-up of imbalances in local asset and housing markets.”

Crude oil traded above $83 a barrel in New York after gaining 1 percent yesterday after a government report showed US refineries operating at the highest level in almost two years, bolstering optimism fuel demand will recover in the world’s largest user.

Bloomberg

Tags: Asia currency market