Asia stocks, Aussie recover from two-day drop

Published: 29 Apr 2009 17:07:29 PST

* Stocks climb 2.6 pct on techs, banks

* Aussie jumps, some cross/yen short-covering seen

* NZ swap rates retreat before expected RBNZ rate cut

* Japan markets closed as Golden Week holidays begin

HONG KONG, April 29 - Asia stocks and the Australian dollar bounced back on Wednesday from a two-day slide, with investors taking heart from data showing the U.S. economy slowly healing while keeping an eye on the spreading swine flu outbreak.

The yen slid against higher-yielding currencies on improving risk appetite after data showing U.S. consumer confidence posting its biggest monthly jump in three years and home price declines slowing from a record pace.

The signs of gradual recovery in the struggling U.S. economy helped ease some of the worries about the impact of the swine flu, as well as reports that top U.S. banks will need to raise more capital after the government stress tests.

But investors were still on high alert over the risk of swine flu being declared a pandemic and the potential economic damage.

"The sentiment is not that of panic but that of caution. There is no indication on how bad the situation may get, so investors are guarded about taking new positions," said Alex Wong, director with Ample Finance Group in Hong Kong.

"Though Hong Kong has the SARS experience behind it, there are fears that this swine flu may be different and could potentially do more damage" he said.

A global hunt turned up new infections all around the world, and frightened governments warned people to stay away from Mexico, where up to 159 people have died.

Seoul's KOSPI index climbed 2.9 percent, led by shares of technology companies like Samsung and LG Electronics, as well as banks.

Hong Kong's Hang Seng index closed 2.8 percent higher, led by HSBC and Li & Fung, which jumped 7.2 percent after the consumer goods exporter said it expected to sign more outsourcing deals as cash-strapped U.S. retailers sought to cut costs.

Analysts were still cautious about how much further shares could rise given the still severe troubles gripping the global economy.

"In order for the index to make a meaningful rebound, we need clearer signs that the global economy and corporate earnings will pick up by 2010, but we haven't seen those yet," said Choi Seong-lak, a market analyst at SK Securities in Seoul.

The MSCI index of Asia-Pacific shares outside Japan rose about 2.6 percent to 270, not far from the year-high of 280 struck nearly two weeks ago.

Trading was limited due to a holiday in Japan, which begins its Golden Week string of holidays that continue next Monday through Wednesday. Many markets in Asia and around the world will also be closed on Friday for May 1 holidays.

Among regional indexes, India led with a 3.7 percent rise, while Shanghai rose 2.8 percent and Singapore added 2.3 percent. Taiwan made a tiny gain of 0.3 percent.

Australian shares shed 0.4 percent as Australia and New Zealand (ANZ) Banking Group Ltd gave investors a reminder that tough economic times were not over by flagging more bad debt trouble ahead.

AUSSIE JUMPS, NZ SWAP RATES DOWN

The Australian dollar -- still among the most sensitive currencies to shifts in risk appetite due to its relatively high yield -- jumped about 1.3 percent to around $0.7147 and gained roughly 2.4 percent against the yen in the Asian day.

Traders said some short-term speculators were covering short positions in Aussie/yen and other yen cross currencies, which tend to move in line with stocks, that were taken on news of the swine flu outbreak at the start of the week.

The dollar climbed around 0.6 percent to about 97.02 yen and recovered from a one-month low hit the previous day, while the euro was up 1.4 percent to about 128.50 yen in Asian trade.

As stock markets around the world rallied about 28 percent from their early March lows, market players also favoured traditional carry trade players in currencies -- borrowing cheap funds in low-yielding currencies such as the yen to buy higher-yielding ones.

In New Zealand, rates on interest-rate swaps fell further, a day before the Reserve Bank of New Zealand is expected to cut rates by a half-point to a record low 2.5 percent at a policy meeting.

But short-term rate markets are not pricing in a full 50 basis point cut as most analysts expect.

Market players were caught off guard after the RBNZ cautioned at its last meeting that its needs to retain competitiveness in global markets -- a phrase taken to mean sufficiently high interest rates to attract foreign capital to cover its large current account deficit.

One-year swap rates fell 10 basis points to 2.955 percent and were just 14 basis points above a record low hit in early March. Five-year swap rates were down about 10 basis points as well to 4.655 percent and were down 43 basis points from a four-month peak hit earlier in the month.

Oil prices climbed above $50 per barrel, supported by rising stock markets and a bigger-than-expected improvement in U.S. consumer confidence, despite concerns over the impact of a global flu crisis.