ASIAN MARKETS: Asian closes higher ahead of Fed; German court approves ESM

Asian markets rose and the dollar sank against the euro on Wednesday ahead of a US Federal Reserve meeting most economists expect will deliver fresh stimulus to kickstart the economy.

Comments from China’s prime minister hinting at monetary easing also gave a fillip, while traders were confident of a positive verdict in Germany as judges were set to rule on whether Berlin can legally take part in the eurozone’s bailout fund.

At 0800 GMT (1600 HKT) the judges gave the green light to the rescue fund, when most major markets in Asia had closed.

Tokyo surged 1.73 per cent, or 152.58 points, to 8,959.96 with better-than-expected July economic data helping to lift sentiment, while Seoul jumped 1.56 per cent, or 30.03 points, to 1,950.03.

Sydney was 0.82 per cent higher, adding 35.5 points to 4,361.3, Hong Kong jumped 1.10 per cent, or 217.51 points, to 20,075.39 and Shanghai added 0.28 per cent, or 6.00 points, to 2,126.55.

The US Fed will later begin its two-day policy meeting overnight, after which there is a wide expectation it will unveil new measures to spur growth, with most analysts tipping a third round of bond-buying, or quantitative easing (QE3). It is due to make an announcement just after midnight (HKT) on Thursday.

On Wall Street the Dow was up 0.52 per cent and the S&P 500 rose 0.31 per cent while the tech-rich Nasdaq was flat.

“Market sentiment is very positive,” said Brett McGonegal, chief executive officer at Reorient Financial Markets in Hong Kong.

“Once people get into the buying mood it is not a one-day event, we could have an overall buying appetite that could absorb a shock,” he told Dow Jones Newswires.

Late Tuesday Chinese Premier Wen Jiabao said the world’s number two economy ”was showing signs of stabilising” and would likely meet the 7.5 per cent growth the government set for the year.
“We will, according to economic trends, make full use of the advantage of having relatively big space for fiscal and monetary policy (moves),” he said.

Wen later emphasised that despite a slowdown in government revenues, the government has about a one trillion yuan (US$158 billion) surplus on its balance sheet and around 100 billion yuan in what he called “stability and adjustment funds”.

The government “will not hesitate to use” such money, he said following a speech to the World Economic Forum in the eastern city of Tianjin.

The comments suggested Beijing was ready to announce new measures to boost spending in China -- a key driver of regional growth -- such as lowering the amount of money banks must keep on reserve, or even cutting interest rates.

In Germany the country’s Constitutional Court ruled that the European Stability Mechanism (ESM), set up to help under pressure nations, was constitutional, removing a key obstacle to tackling the region’s debt crisis.

While the court has a history of ruling in favour of steps towards greater European integration, a negative decision could have dealt a blow to the euro project owing to Germany’s key role in financing future rescues.

But the court’s decision in favour of the ESM and the likelihood of more dollars flooding the market on the back of QE3 sent the euro soaring against the greenback.

In Tokyo the single currency spiked at US$1.2895, its highest since May, compared with US$1.2848 late Tuesday in New York. It also rose to 100.28 yen from 99.88 yen.

The dollar bought 77.81 yen, against 77.73 yen in New York, although still well down from around 78.20 yen in Asia on Tuesday.

However, weighing on the dollar was a warning from Moody’s that it would downgrade the United States’ AAA credit rating if lawmakers did not get the country’s debt situation in order.

The warning came a year after a fellow rating agency downgraded the US for the first time in the country’s history.

On oil markets New York’s main contract, light sweet crude for delivery in October, rose five US cents to US$97.22 a barrel in the afternoon and Brent North Sea crude for October rose 31 US cents to US$115.71.

Gold was at US$1,737.90 at 0815 GMT compared with US$1,730.35 on Tuesday.

In other markets:

-- Taipei rose 1.14 per cent, or 85.32 points, to 7,570.45.

-- Manila closed 0.41 per cent higher, adding 21.05 points to 5,207.10.

-- Wellington rose 1.20 per cent, or 44.76 points, to 3,789.72.