Asian Stocks Gain as Bond Risk Drops on Europe

By Shiyin Chen and Shani Raja - Oct 17, 2011 1:03 PM GMT+0700

Asian stocks advanced, extending the largest weekly rally in more than six months, while Treasuries and bond risk fell after Group of 20 officials endorsed parts of a plan to avoid a Greek default. The won rose as South Korea’s finance minister said the economy is doing better than expected.

The MSCI Asia Pacific Index jumped 1.8 percent by 3 p.m. in Tokyo. Euro Stoxx 50 Index futures added 1 percent and Standard & Poor’s 500 contracts were 0.4 percent higher after the index’s biggest weekly gain since 2009. Treasury 10-year yields reached a six-week high. The cost of insuring Asia-Pacific bonds from default headed for a four-week low. The won strengthened 1.4 percent, while the euro slipped 0.2 percent to $1.3856.

European Union Economic and Monetary Affairs Commissioner Olli Rehn said clarity on a plan to contain the region’s debt crisis will emerge in the “coming days,” as G-20 officials held out the prospect of giving more International Monetary Fund aid to Europe. South Korean Finance Minister Bahk Jae Wan said at the meeting in Paris the Asian economy is performing better amid easing inflationary pressures, while data tomorrow may show China’s economy expanded more than 9 percent last quarter.

“An important precondition for resolving the European credit crisis is unity of vision and commitment to find a solution,” said Angus Gluskie, who manages more than $300 million at White Funds Management in Sydney. “The comments over the weekend show some elements of both. A credible and well- executed solution is the next element, and we are yet to see this.”

Stocks Rally

More than four stocks advanced for every one that fell on MSCI’s Asia Pacific Index, which rallied 3.4 percent last week, the most since the five days ended March 25. Japan’s Nikkei 225 Stock Average rose 1.5 percent, Australia’s S&P/ASX Index jumped 1.7 percent and South Korea’s Kospi Index climbed 1.6 percent.

SK Innovation Co. rallied 5.6 percent, leading South Korean refiners higher, after Samsung Securities Co. said the shares are undervalued. Olympus Corp. plunged 24 percent in Tokyo after at least five brokerages cut their ratings on the optical- equipment maker following the Oct. 14 dismissal of President Michael C. Woodford.

U.S. futures signal the S&P 500 may extend last week’s 6 percent jump, the steepest weekly increase since July 2009. El Paso Corp. (EP) may rally after Kinder Morgan Inc. agreed to buy the company for about $21.1 billion in cash and stock, creating the largest U.S. natural-gas pipeline network. The offer is valued at $26.87 per El Paso share, or 37 percent more than their Oct. 14 closing price.

Earnings, TIPS

Citigroup Inc. and Wells Fargo & Co. are among U.S. companies scheduled to release their results before the start of trading today, while International Business Machines Corp., the world’s fifth-biggest company by market value, will report earnings after the close of trading.

Treasury 10-year yields rose two basis points to 2.27 percent. The Federal Reserve is scheduled to sell $1 billion to $1.5 billion of Treasury Inflation Protected Securities due from April 2012 to July 2014 today as part of its plan to keep down borrowing costs by swapping its holdings of shorter maturities for longer ones.

The cost of protecting Asia-Pacific corporate and sovereign bonds from default dropped, with the Markit iTraxx Australia index declining 3.5 basis points to 187.5 basis points, according to Deutsche Bank AG. The index is on course for the lowest close since Sept. 19, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 14 basis points to 198 basis points, Royal Bank of Scotland Group Plc prices show. The gauge is set for its lowest close since Sept. 20, CMA prices show.

Europe’s Deadline

The euro retreated from near its highest in a month against the dollar, after rallying 3.8 percent last week, the most since March 2009. The 17-nation currency declined 0.3 percent to 106.85 yen. G-20 finance ministers and central banks set an Oct. 23 summit of European leaders in Brussels as the deadline to deliver a plan to halt the crisis.

“We’re now in anticipation of maybe too much from the Europeans,” said Tim Riddell, the Singapore-based head of global markets research for Asia at Australia & New Zealand Banking Group Ltd. “Look to buy into dips in the euro rather than chase it because we will get pockets of disappointment as we start to assess what the Europeans are genuinely capable of providing.”

The won appreciated to 1,140.45 per dollar, extending last week’s 1.9 percent jump. The Taiwan dollar strengthened 0.6 percent to NT$30.108, while Malaysia’s ringgit rose 0.3 percent to 3.1203 versus the U.S. currency.

Crude advanced as much as 1.1 percent to $87.71 a barrel before trading 0.4 percent higher at $87.13 on the New York Mercantile Exchange. Futures, which rose 4.6 percent last week, settled at $86.80 on Oct. 14, the highest close since Sept. 20.

Rice futures for November delivery added 0.4 percent to $16.685 per 100 pounds, adding to a four-day, 7.2 percent rally. Floods in Thailand have damaged 13 percent of the rice fields in the world’s biggest exporter of the grain, according to the farm ministry.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net