Most Asian stock markets rose on Monday, with Europe set to follow, as fears eased that Washington would draft a harsh bill for regulating the banking sector and after an unremarkable conclusion to a Group of 20 leaders' summit.
G20 leaders meeting in Toronto agreed to take their own paths to ensuring economic growth and left room to move at their own pace, trying to balance contrasting priorities by pledging to halve budget deficits by 2013 without stunting growth.
The heads of the G20 rich and developing nations also promised to clamp down on risky behavior by banks without restricting lending, and agreed to give banks more time to adopt tougher rules.
That followed an historic overhaul of financial regulations by U.S. lawmakers on Friday, with banks forced to spin off swap trading operations. Banks will be able to keep most of their books but will be barred from commodity, equity and some credit default swaps.
I don't see much substance from G20, said Lin Yuhui, deputy general manager of Jinhui Futures.
Basically it's saying everyone is back to minding their own business, just like before the crisis, Lin said.
The MSCI index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.6 percent, with financial shares outperforming. Hong Kong stocks <.HSI> led the way, rising 0.4 percent.
Financial bookmakers said Europe's main benchmark indexes would likely head in the same direction, with spreadbetters expecting Britain's FTSE 100 <.FTSE>, Germany's DAX <.GDAXI> and France's CAC- 40 to open as much as 0.9 percent higher.
U.S. stock futures <.SPc1> were slightly weaker, however.
Investors will have to weather a welter of U.S. data this week, including June jobs numbers on Friday, consumer confidence, pending home sales and some early earnings reports.
U.S. economic data has been mixed in recent weeks, raising doubts about the strength of its recovery.
In Tokyo, the Nikkei share average <.N225> fell 0.5 percent, extending falls after closing last week below a key support level and booking its biggest weekly loss in a month with an indecisive outcome likely in an upper house poll next month.
A muted reaction to the G20 meeting didn't help, with the Japanese market slipping across the board.
Wall Street <.SPX> had finished almost unchanged on Friday, although financial stocks had gained on relief the U.S. financial regulation bill would not inhibit Wall Street profits as much as had been feared. <.N>
Underlining the less-than-decisive conclusion to the G20 summit, Angel Gurria, head of the Organisation for Economic Co-operation and Development, said the incipient recovery offered policy choices but also made it harder to find common ground.
When the house was on fire, we all knew what to do: get a hose, Gurria told G20 leaders.
Asian debt spreads narrowed after widening in the previous four sessions, with investors encouraged to buy riskier assets after the G20 leaders committed to cutting budget deficits.
The Asia ex-Japan iTraxx investment-grade index narrowed 7 basis points (bps) from Friday to 132/134, a Singapore-based trader said.
CHINA MUTES YUAN TALK
Signaling the difficulties groups such as the G20 have in addressing matters crucial to global economic imbalances, China succeeded in having a line praising its decision to move toward a more flexible exchange rate removed from the G20 communiqué.
Beijing maintains debate about the yuan has no place in international forums, and did not want even a positive reference to the currency to set a potential precedent for singling its currency out.
The People's Bank of China set the yuan's daily mid-point at 6.7890 against the dollar on Monday, a new post-2005 revaluation high.
The yuan has risen about 0.5 percent in the past week since the PBOC said on June 19 that it was unshackling the currency from its two-year-old peg to the dollar, but gains have been kept in check by big state-owned banks and any further appreciation is expected to be glacial.
Japan's retail sales in May rose 2.8 percent from a year ago, their slowest annual pace since January, in a sign consumption driven by government stimulus spending may be slowing. Retail sales had been surging since the start of the year, helped by government subsidies for durable goods.
Investors seeking to cut long positions in favor of the greenback had the dollar on the defensive on Monday. The euro held gains as the focus shifted to the sustainability of a U.S. recovery from euro zone debt worries.
The dollar index <.DXY> edged up 0.1 percent to 85.43, holding above last week's low of 85.09. The dollar hovered near a five-week trough against the yen after data released on Friday showed U.S. gross domestic product in the first quarter grew more slowly than expected.
I have a feeling in my bones that perhaps Friday was the start of the market questioning the viability of the U.S. as the safe haven, said Tim Lovell, an economist at ICAP in Sydney. Higher commodities and the subdued U.S. dollar helped the Australian and New dollars. [ID:nSGE65R022] The Australian dollar held firm at around $0.8750. U.S. crude oil futures briefly rose to their highest in nearly eight weeks at $79 a barrel as tropical storm Alex forced Mexico to reduce oil exports and some U.S. producers to evacuate platforms and curb output. [ID:nSGE65R00H]
(Additional reporting by Rika Otsuka, Aiko Hayashi and Tetsushi Kajimoto in Tokyo, Lu Jianxin in Shanghai, Gyles Beckford in Wellington, Anirban Nag in Sydney, Alejandro Barbajosa in Singapore; Writing by Paul Tait; Editing by Kim Coghill)