Asian Shares Hit 4-Month High, Dollar Weak On Fed Action

 
on September 13 2012 9:00 PM

(Reuters) - Asian shares rose to a four-month high Friday while the dollar remained weak against other major currencies after the U.S. Federal Reserve announced an aggressive new stimulus to drive job creation in the U.S. economy.

The Fed's move will likely accelerate the risk-positive momentum at work since the European Central Bank's bond-buying scheme to get borrowing costs down for euro zone members was approved by Germany's constitutional court.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.9 percent after U.S. stocks rallied to multi-year highs, with the Standard & Poor's 500 Index <.SPX> hitting its highest close since December 2007 on Thursday.

Japan's Nikkei stock average <.N225> opened up 1.1 percent.

The Fed said it will buy $40 billion of mortgage-backed debt per month until the outlook for jobs improves substantially as long as inflation remains contained, acting on its dual mandate to maintain low inflation and tackle unemployment.

The Fed also said it was unlikely to raise interest rates from current lows until at least mid-2015, extending the timeframe for such a move from late 2014.

"The Fed decision to introduce the newest round of quantitative easing is less QE3 and more QE Infinity," said Neal Gilbert, currency strategist at GFT Forex in New Jersey, noting that no limit has been set on the intervention.

"With Europe getting their act together (at least temporarily), the Fed flooding the market with cash, and China talking stimulatory infrastructure projects, the three largest influencers of market dynamics could be creating a bull market for at least the near term," he told Reuters by e-mail.

Gilbert expects the strongest reactions in the euro against the dollar, while the yen may face the unintended consequence of appreciating against the dollar to levels that the Japanese authorities would find uncomfortable.

Japan's top financial diplomat Takehiko Nakao declined to comment on Friday regarding currency movements following the Fed's move.

The dollar traded up 0.1 percent at 77.57 yen, recovering from the seven-month low at 77.13 yen touched on Thursday. The euro held steady at $1.2987, just below a four-month high at $1.3002 reached on Thursday.

The dollar index <.DXY> measured against a basket of key currencies hovered near a four-month low of 79.18 hit on Thursday.

Oil eased from overnight gains, with U.S. crude futures down 0.1 percent at $98.17 a barrel while Brent eased 0.2 percent to $115.68.

The Thomson Reuters-Jefferies CRB .CRB commodity index rose 0.55 percent on Thursday, a sixth straight gain, to touch the highest level since March.

Jeff Sica, chief investment officer of Sica Wealth Management which currently manages over $1 billion in client assets, real estate and private equity holdings, now sees gold as the ultimate investment in the face of mass liquidity creation and the weakening dollar.

"The appeal of gold as a shelter from fear and a secondary currency has never been greater," Sica said in an e-mail to Reuters, adding he expected commodity prices to continue rising.

Spot gold steadied at $1,766.75 an ounce, after surging 2 percent on Thursday to a high of $1,772.26, its highest since February 29.

Sica doubted that market euphoria will last long, as investors will soon shift their focus to the weak economic fundamentals and the risk of relying heavily on a government entity for its growth.

"As the central bank takes this responsibility and commits to its execution, any attempt to return to an economy that relies on free market fundamentals will be extremely difficult - the Fed has crossed the point of no return," he said.

Asian credit markets were steady, with the spread on the iTraxx Asia ex-Japan investment-grade index staying near its lowest level since August last year.

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