Asian stocks struck a one-month high on Monday as reassurances over the health of the U.S. banking sector sparked a broad recovery in investor appetite for risk, while safe-haven government bonds also gained on hopes for more central bank buying.
Oil prices tumbled $1.87 a barrel to $44.38 as market players questioned whether OPEC's weekend decision to enforce better compliance on previous supply cuts would be enough to offset the drop in global demand.
Last week U.S. banking giants Citigroup
Reports that the Bank of Japan was considering buying subordinated debt issued by banks boosted Japan's Nikkei average <.N225> 2.4 percent, taking it further away from a 26-year closing low touched last week. The Tokyo Stock Exchange bank index <.IBNKS.T> jumped 5.8 percent.
But Japanese government bonds also pushed higher, bucking the rebound in riskier assets, on reports the BOJ was also set to boost its monthly debt purchases.
Outright purchases of government bonds is one of the extreme policy options some central banks, such as the Bank of England, have adopted to buttress hard-hit economies after having already chopped interest rates to near zero.
Over the weekend, finance ministers and central bankers from Group of 20 countries pledged to use their full fiscal and monetary firepower to combat the economic crisis, but decisions taken focused more on funds for the IMF and regulating hedge funds.
Federal Reserve Chairman Ben Bernanke said on Sunday that he sees a U.S. recovery beginning in 2010, but a risk remained that there was not enough political will to do everything necessary to fix the fractured financial system.
The Australian and New Zealand dollars led gains versus the low-yielding yen, pushing back near a two-month peak.
The MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> rose 1.2 percent, driven by the jump in financial shares. On Friday the U.S. S&P 500 <.SPX> rose 0.8 percent and racked up its biggest weekly gain since November.
Gains are likely to continue as long as U.S. stocks continue their recovery, said Yoo Soo-min, a market analyst at Hyundai Securities.
The dollar was mixed, edging up against the yen and getting a lift from the rise in higher-yielding currencies. The dollar edged up 0.2 percent to 98.25 yen, and the Aussie rose 0.3 percent to 64.45 yen.
The yen fell in part on selling by Japanese importers and other corporates. The yen has been whipped around by investor and corporate flows before Japan's business year wraps up at the end of the month.
With the focus on the U.S. financial system, the daily moves in the S&P 500 are having a big impact across markets. For example, the rolling 90-day correlation between the S&P and Aussie is a positive 70-80 percent -- showing the two tend to move closely together.
The South Korean won, the most battered of Asian currencies on worries about the country's ability to roll over its foreign debt, jumped about 2 percent and has rebounded nearly 10 percent from an 11-year low hit earlier in the month.
In government debt markets, June JGB futures edged up 0.20 point to 138.87, up from a one-month low hit last week. The rise on bonds pushed the benchmark 10-year yield down 1.5 basis points to 1.300 percent.