Asian stocks rebounded on Tuesday and the dollar struggled after Federal Reserve Chairman Ben Bernanke said ultra-loose monetary policy was still needed to reduce unemployment even though the U.S. economy has shown signs of improvement.
Wall Street stocks had risen more than 1 percent on Bernanke's comments, which supported views that easy monetary policy would remain in place for some time and fanned expectations for more asset purchases by the U.S. central bank.
Global equities have been rallying since late last year, partly due to steadily improving U.S. economic data and massive doses of liquidity from central banks, but hit a bump in mid-March after China signalled its growth was moderating.
We are clearly addicted to this highly liquid market, and Bernanke has reassured that it (will) stay up this way, said Kent Engelke, chief economic strategist at Capitol Securities Management.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.9 percent, while Tokyo's Nikkei share average <.N225> rose 1.8 percent, taking its gains for the year-to-date to around 20 percent. <.T>
Asset returns in 2012: http://link.reuters.com/nyw85s
Gains in Asian equity markets have been boosted by the return of foreign funds this year, as ample liquidity, ultra-low interest rates and signs of easing in the euro zone's debt crisis prompt some money managers in the United States and Europe to go hunting for better returns overseas.
I think foreign buying will continue as they are still slightly underweight in Japanese equities, said Jun Yunoki, an equity strategy analyst at Nomura in Tokyo.
In a speech to the National Association for Business Economics, Bernanke said easy monetary policy would support demand and, over time, drive down long-term unemployment.
His argument that unemployment was largely cyclical rather than structural caught the market's imagination, said Sebastien Galy, strategist at Societe Generale.
It suggests QE3 is on its way or at least a very dovish stance until such a point as unemployment falls enough.
Previous rounds of quantitative easing, the creation of money to fund asset purchases by the Fed, have weakened the dollar, and the dollar index <.DXY>, which measures the currency against a basket of major peers, was down 0.1 percent near a four-week low.
The euro, which was also supported by data from Germany showing business morale rose unexpectedly for a fifth successive month in March, rose to its highest in a month before easing to trade steady on the day around $1.3356.
Commodity-linked currencies, hit hard last week by growing fears of weaker Chinese demand for resources, also gained. The Australian dollar popped back above $1.05, well off last week's low of $1.0333.
As participants cautiously price more QE back into markets, the commodity currencies -- the Australian, Canadian, and New Zealand Dollar -- are likely to attract attention given their high yields relative to the U.S. dollar, said Christopher Vecchio, currency analyst at DailyFX.
Commodities were mostly steady, after gains in the previous session on Bernanke's comments.
Copper rose 0.1 percent to around $8,525 a tonne, after rising nearly 2 percent on Monday. Oil barely budged, with U.S. crude just above $107 a barrel and Brent crude around $125.60.
(Additional reporting by Ian Chua in Sydney; Editing by Kim Coghill)