Asia Shares Up As Gradual Fed Hikes Expected

By Wayne Cole

SYDNEY (Reuters) -- Asian share markets rose on Thursday as Wall Street bounced on expectations the Federal Reserve would be confident enough of the U.S. economy to raise rates in December but would then proceed with great caution on further tightening.

The prospect of the first U.S. hike in almost a decade kept the dollar strong overall and commodities under severe pressure. Investors also have to steer past a Bank of Japan policy meeting and minutes of the European Central Bank's last meeting.

Japan's Nikkei firmed 1 percent, brushing aside a disappointing report on exports and imports.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.6 percent. Australia's main index rose 1.1 percent, aiming for a third straight session of gains.

Sentiment was supported by the Dow which ended Wednesday with a gain of 1.43 percent, while the S&P 500 added 1.62 percent and the Nasdaq 1.79 percent.

Major European stock indexes fell as security issues remained a focus for investors. A suicide bomber blew herself up in a police raid that sources said had foiled a jihadi plan to hit Paris's business district, days after attacks that killed 129 across the French capital.

The French CAC 40 index fell 0.6 percent.

Minutes of the Fed's last policy meeting showed most members were ready to sanction a lift off in December as long as further moves were then highly dependent on the economy continuing to perform well.

"If - when - they lift rates in December, the Fed will likely be very aggressive in highlighting the idea of a very gradual pace," said Tom Porcelli, chief U.S. economist at RBC Capital Markets.

"We fully expect Yellen to promote this heavily at her press conference."

The bond market seemed to get the message with longer-term debt outperforming and the yield curve flattening noticeably. While two-year yields rose 3 basis points those on 30-year paper actually dipped a basis point.

The premium offered by U.S. two-year debt over its German counterpart also yawned out to 124 basis points, the fattest margin since 2006 and a fillip to the dollar.

The dollar hit a seven-month peak against a currency basket and a 10-month high on the Swiss franc. The euro edged up to $1.0676, having hit its lowest since August.

The dollar was steady on the yen at 123.51, after touching a three-month peak of 123.67.

The Bank of Japan holds a policy meeting Thursday and is thought likely to maintain its current pace of asset buying despite the economy slipping back into recession.

Minutes of the European Central Bank's last policy meeting are also due later Thursday and will likely reinforce expectations of further easing in December.

In commodity markets, the high dollar and worries about Chinese demand saw zinc, copper, lead and nickel prices near their lowest in five to seven years.

Oil prices came off three-month lows as short-covering lifted a market initially suppressed by worries about a global supply glut. U.S. crude was up 13 cents to $40.88 a barrel, while Brent LCOc1 stood at $43.14.

(Reporting by Wayne Cole; Editing by Eric Meijer)