Asian Stocks Gain On China Policy Easing

  on May 14 2012 2:32 AM

Asian stock markets advanced on Monday after People's Bank of China announced a second cut this year in the reserve ratio to boost economic growth.

The Japanese benchmark Nikkei gained 0.24 percent or 21.21 points to 8,974.52, Chinese Shanghai Composite advanced 0.28 percent or 6.66 points to touch 2,401.65 and Indian benchmark BSE Sensex rose 0.36 percent or 57.98 points to 16,350.96, while Hong Kong's Hang Seng and South Korea's KOSPI are trading flat.

Over the weekend, China's central bank announced a second cut in its banks’ reserve requirement ratio (RRR) -- the level of reserves that banks must hold -- by 50bps to 20 percent, effective May 18. The cut is the second in nearly three months and third in six months. The Chinese Central Bank has lowered the reserve requirement ratio by a total of 100 basis points since last November.

The latest move from the central bank will boost banks' lending capacity by an estimated 400 billion yuan ($63.5 billion), while analysts at Credit Agricole Research expect further RRR cuts up to 150bp this year.

“The PBoC is likely to continue with liquidity management tools to tackle inflation problem, rather than the traditional interest rate policy, with a view to maintaining flexibility and achieving targeted results,” said a note from Credit Agricole.

Meanwhile, growing concerns over political instability in Greece limited the upward move. President Papoulias met with all those party leaders having won seats in the parliament, but failed to convince major parties to form a government. Papoulias is expected to meet the three major party leaders later Monday in a last-ditch effort to avoid new elections.

Among the stocks, Sony Corp gained 1.59 percent and Nippon Soda Co surged 4.15 percent, while Nippon Sheet Glass plunged 2.02 percent in Tokyo.

Takeda Pharmaceutical Co plunged 3.38 percent after forecasting a 40 percent decline in the company's operating profit.

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