Asian shares rallied on Wednesday as reports of stronger-than-expected industrial output in China raised optimism about the global economy, lifting metals and oil prices at or near multi-month highs.
Gains in shares accelerated after two Chinese papers reported China's industrial production rose by 8.9 percent in May from a year earlier, well ahead of forecasts and the fastest growth since September last year.
The data is not due until Friday, but these same papers had accurately reported the inflation data ahead of the official release.
The prospects of a stronger China's economy, along with the weakening U.S. dollar, are helping buoy prices of key metals like copper, which hit its highest level since Oct 15 on Tuesday. Oil prices rose above $71 for the first time in seven months.
Commodity-related shares such as Rio Tinto
Most of the moves are coming from commodities, not surprising considering how strong commodities were last night. Copper in particular was extremely strong. That's reflected in the market today, said James Foulsham, head of trading at CMC Markets in Australia.
Dealers also chipped away at the U.S. dollar as futures markets reflected second thoughts about a possible Federal Reserve rate hike this year, while the Australian dollar rose further above US$0.80 after an index of consumer confidence in the resource-rich country showed the biggest gain in 22 years.
In Asian equity markets, Australia's benchmark S&P/ASX 200 index <.AXJO> was one of the biggest gainers, rising 2.3 percent.
Shares of mining giants Rio Tinto
Japan's Nikkei share average <.N225> climbed 2.1 percent, after earlier hitting a eight-month high. Mitsubishi Corp <8058.T>, Japan's largest trading house, surged 6.3 percent on the back of higher commodity prices. Shipping firms also rose on hopes for a recovery in the global economy.
The Nikkei largely shrugged off data showed Japan's core machinery orders unexpectedly fell 5.4 percent in April, suggesting any recovery in capital expenditure is still fragile.
The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> rose 2.7 percent, recouping its entire loss of 2.7 percent over the previous two sessions. The index has risen 57 percent since a global equity rally began on March 9.
Recent indicators have almost consistently shown a global economy that is past its worst. Investors have particularly welcome the positive signals from China, a key buyer of raw materials and commodities, and an increasingly crucial nexus in global trade.
Shanghai copper rose about 2 percent to 41,680 yuan a tonne, tracking London copper's rally in the previous session. But the RSI, or relative strength indices, for copper and aluminum in both London and Shanghai are now above 70, a sign that the markets are overbought.
It is still unclear if signs of improvement in some markets point to the return of sustained consumer demand or if companies are merely replenishing depleted inventories. A solid rebound in end-user demand is needed to ensure a global recovery.
The ICE Futures U.S. dollar index <.DXY>, a measure of its value against a basket of six other major currencies, edged down 0.2 percent on the day, after falling about 1.2 percent on Tuesday.
The dollar had been momentarily propelled by speculation the Fed may have to raise interest rates sooner than previously thought if economic numbers such as last Friday's U.S. payrolls figure keep surprising to the upside.
However, the December three-month eurodollar contract, a way for traders to bet on short-term interest rates, has clawed back about half the losses endured since last Friday, putting pressure again on the dollar.
The Australian dollar was one of the biggest movers in the currency market, rising about 0.5 percent on the day to US$0.8063. The currency found support from the Westpac-Melbourne Institute consumer sentiment index, which soared 12.7 percent in June, the biggest monthly rise in 22 years.
The Australian dollar was still well off an eight-month high of US$0.8263 hit on June 3.
Government bond investors were focused on an auction later in the day for $19 billion in 10-year U.S. Treasury notes and $11 billion in 30-year bonds on Thursday.
Investors were already pushing up late maturity yields, with the benchmark 10-year yield edging up to 3.88 percent compared with 3.86 percent late in New York on Tuesday.
After contracting sharply for the last two trading sessions, the difference between the 10-year yield and the 2-year yield widened by 9 basis points.
U.S. light crude for July delivery rose $1.08 cents to $71.09 a barrel to seven-month highs, having climbed nearly 60 percent since March 2009. The latest rise is because of a much larger-than-expected drop in crude inventories.
(Editing by Kazunori Takada)