Asian shares gain as Shanghai stocks extend recovery

By Hideyuki Sano

TOKYO, Sept 26 (Reuters) – Asian shares inched up on Wednesday, as Chinese stocks extended their recovery to hit eight-week highs on receding fears about the trade war as well as hopes China’s weighting in the global benchmark will be increased.

Other markets were more subdued as U.S. bond yields edged near a seven-year peak ahead of a widely expected rate hike by the Federal Reserve and as international oil prices rose to four-year highs.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.4 percent. Shanghai shares rose 1.5 percent.

Global index provider MSCI said it will consider quadrupling the weighting of Chinese big-caps in its global benchmarks and also proposed adding mid-caps and shares listed on Shenzhen’s start-up board ChiNext.

The news further improved the mood of the market, where fears about the trade war have been offset by hopes Beijing’s stimulus could help the economy weather the impact of U.S. tariffs.

In Japan, the Nikkei was almost flat.

Wall Street shares were mixed overnight, as rises in energy shares on higher oil prices and gains in consumer discretionary shares following strong U.S. consumer confidence were offset by falls in many other sectors.

U.S. consumer confidence hit an 18-year high, adding to a string of recent U.S. data that pointed to the strong U.S. economic momentum, despite concerns about trade wars U.S. President Donald Trump is waging.

The Dow Jones Industrial Average fell 0.26 percent, the S&P 500 lost 0.13 percent while the Nasdaq Composite added 0.18 percent.

The utility sector, sometimes seen as an alternative to bonds because of the relative steadiness of their business, was the worst performer as investors braced for a rate hike by the Federal Reserve later on Wednesday.

The benchmark 10-year Treasury yield rose to as high as 3.113 percent, near its seven-year peak of 3.128 percent touched on May 18. It last stood at 3.098 percent.

Fed funds rates futures implied traders are fully pricing in a rate hike on Wednesday, and another 85 percent chance the Fed would raise rates again in December.

“The focus will be on whether the Fed will indicate its tightening is coming to an end. The Fed may not do so today but I expect markets will soon start looking to that scenario,” said Akira Takei, bond fund manager at Asset Management One.

The Fed’s past policy statements have shown that policy makers see 2.9 percent, about 100 basis points above the current levels, as an appropriate level in the longer run.

That means the Fed would hit that level with only two more rate hikes, if it will bump up rates twice more this year as widely expected.

Takei of Asset Management One noted that there are already signs that higher rates are starting to hurt the U.S. economy, such as a rise in delinquencies of consumer loans, adding the dollar’s softness could be an early sign of growing focus over an end to the U.S. tightening cycle.

The dollar’s index against a basket of major currencies stood at 94.169, near Friday’s 93.808, a 2-1/2-month low.

The euro traded at $1.1765, not far from three-month high of $1.18155 touched on Monday.

Many emerging market currencies, such as the Turkish lira and the South African rand, also kept some distances from lows hit last month.

Bucking the trend of greenback weakness, the yen changed hands at 112.92 to the dollar, near six-month lows of 113.18 set in mid-July.

Oil prices were supported on concerns of tight supply on U.S. sanctions on Iran’s oil exports, quickly paring early losses following data showing U.S. crude stocks rose unexpectedly last week and renewed call from Trump on OPEC to boost crude output.

“Saudi Arabia appears to have changed its stance. It seems to be intended to maintain high prices. It could increase output to deal with decline in Iran’s production but it is unlikely to step up output to bring down prices,” said Tatsufumi Okoshi, senior commodity economist at Nomura.

Benchmark Brent futures hit $82.55 per barrel, its highest since Nov. 10, 2014, on Tuesday and last stood at $81.85, almost flat on the day.

Brent is on course for its fifth consecutive quarterly increase, the longest such stretch for the global benchmark since early 2007, when a six-quarter run led to a record-high of $147.50 a barrel.

U.S. crud futures ticked down 0.2 percent to $72.16 per barrel after hitting an 11-week high of $72.78 the previous day.

(Editing by Shri Navaratnam and Richard Borsuk)

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