Asian stocks jumped more than 2 percent on Monday, lifting world shares to a 10-month high, after upbeat U.S. housing data and optimistic comments from Federal Reserve Chairman Ben Bernanke spurred buying of riskier assets.
Solid earnings from Chinese heavyweights such as Sinopec <0386.HK><600028.SS>, the world's second largest refiner, gave a boost to Shanghai, which posted a third straight day of gains and started to stabilize from a slide that had spooked investors around the world.
Oil prices climbed back near a 10-month peak and copper futures jumped on hopes the global economic recovery is picking up steam. The dollar was little changed even as higher-yielding currencies such as the Australian dollar climbed.
People are feeling a lot better and putting their money to work back in the market, said Chris Kimber, a client adviser with Bell Potter Securities in Australia.
Growing signs of improvement in the U.S. housing market, the source of the international financial crisis and deepest global recession in decades, have given investors more confidence to buy shares and commodities, betting on stronger growth in the months ahead.
Bernanke told the Fed's annual gathering of global central bankers on Friday that prospects were good for a return to global growth but warned it would be a long, slow climb back to normal conditions.
ECB President Jean-Claude Trichet also warned the same gathering that he was a bit uneasy about the talk of conditions returning to normal.
Nouriel Roubini, one of the few economists who accurately predicted the magnitude of the world's recent financial troubles, sees a big risk of a double-dip recession, according to an opinion piece posted on the Financial Times' website on Sunday.
Roubini said it appears the global economy will bottom out in the second half of this year, but that U.S. and western European economies will likely see anemic and below trend growth for at least a couple of years.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 2.2 percent, bouncing back from last week's drop of more than 3 percent, mainly due to a sell-off in Shanghai shares.
The MSCI index of world shares <.MIWD00000PUS> rose 0.5 percent to its highest since early October last year when global stock markets went into a freefall.
Hong Kong's Hang Seng <.HSI> was up 2 percent, while the China Enterprises Index of Chinese companies <.HSCE> gained 2.4 percent. The Shanghai Composite <.SSEC> edged up 0.4 percent.
Despite persistent worries that Chinese officials could crack down on bank lending and choke off the funds that have partly flowed into the stock market, analysts said that Beijing was likely to remain cautious about winding back its loose monetary policy until the economy recovery was on solid footing.
The flow of official statements still incite us to believe that China's top policy makers will likely avoid a too strong tightening in order to keep economic growth and the job creation processes on track, said analysts at Calyon in a note to clients.
Chinese economic growth is likely to stay at 8 percent next year as property and corporate investment, along with rising exports, take up the slack from waning government stimulus, central bank adviser Fan Gang said in remarks reported by the Shanghai Securities News on Monday.
Japan's Nikkei average <.N225> rose 3.1 percent, partly as some market players covered short positions in automaker shares after the U.S. government said it would not extend its cash for clunkers program that has been a boon to the battered sector.
DOLLAR GAINS ON YEN
The Nikkei's gains shoved Japanese government bonds lower, pushing benchmark yields off a five-week low hit on Friday. The 10-year yield edged up 2.5 basis points to 1.335 percent.
The dollar <.DXY> was little changed against most major currencies but climbed against the yen, which fell broadly as investors moved funds out of the Japanese currency and into higher-risk, higher-yielding assets.
The dollar was up 0.4 percent at 94.80 yen. The Aussie gained 0.6 percent to $0.8395 and 79.55 yen.
A rebound in commodity prices underpinned the Australian currency. Copper prices jumped nearly 1 percent, while U.S. crude edged up 32 cents to $74.21 a barrel.
(Editing by Kim Coghill)