Asian stocks inched higher on Wednesday after a financial sector-driven rally pushed them to one-month highs this week, while U.S. Treasuries edged up on speculation the Federal Reserve may take the unorthodox step of buying government debt to push down interest rates.
As benchmark rates head to zero in advanced economies but economic data continue to reflect weakness, investors have focused on what other actions policymakers will take to achieve stability.
Shares of large Japanese banks jumped 2-3 percent after the Bank of Japan said on Tuesday it would offer $10.2 billion in subordinated loans to lenders to shore up their capital base.
Japanese government bonds, meanwhile, were steady ahead of the end of a Bank of Japan meeting later in the day. Economists said there was a 50/50 chance policymakers would increase purchases of government debt, effectively taking the country closer to printing money to battle a deepening recession.
Investors are chasing banks, also as they think the central bank might soon decide more measures to help the financial sector. said Shinji Igarashi, equity manager of the sales department at Chuo Securities in Japan.
The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> inched up 0.2 percent after climbing more than 7 percent since the month began. Gains in U.S. stocks overnight after an unexpected jump in housing starts buoyed sentiment, but investors remained cautious over whether the rally can be sustained.
Twenty-day rolling returns on the index of 4 percent exceeded the 0.7 decline on the MSCI all-country world index <.MIWD00000PUS> and the roughly 3 percent yielded by the 10-year U.S. Treasury note.
Japan's Nikkei share average <.N225> was up slightly on the day, at 0.1 percent after briefly trading at a one-month high. Banks were some of the clear outperformers, with Sumitomo Mitsui Financial Group <8316.T> and Mizuho Financial Group <8411.T> both up 3 percent on hopes the global financial system was stabilizing.
Hong Kong's Hang Seng index <.HSI> rose 1.5 percent, propelled by a 4.5 percent jump in shares of HSBC <0005.HK>.
Bargain hunters and institutional investors have laid waste to short sellers of Europe's largest lender, with the stock up nearly 40 percent since last week when doubts grew ahead of a massive rights issue.
U.S. Treasuries crept higher as some dealers bet the Fed would lean closer to buying long-dated government debt to pull down interest rates of things like mortgages.
The yield on the benchmark 10-year note ticked down to 2.99 from 3.0 percent overnight in New York. Since the beginning of the year, the yield has risen some 75 basis points but has stopped cold around 3 percent.
Uncertainty about what the Fed and other policymakers are willing to do has kept investors cautious about diving back into riskier fixed-income products or straying too far from long-maturity government debt.
Having lowered interest rates aggressively, authorities are now turning to less conventional measures such as quantitative easing. The extent and timing of the positive impact of this policy on the economy is not yet known and the short-term effect on markets may be heightened volatility, said Quentin Fitzsimmons, a fund manager at Threadneedle in London.
Japanese government bond futures were flat ahead of the outcome of the BOJ policy meeting later in the day. It is expected to keep rates on hold at 0.10 percent but board members may consider further steps for the future.
The euro held close to a recent one-month high on the dollar and briefly forged an 11-week peak against the yen, as increasing tolerance of risk among investors inspired them to leave behind currencies associated with relative safety.
The euro was steady at $1.3020, after gaining 0.4 percent in the previous session. It hovered below Monday's five-week high of $1.3072.
The euro hit its highest since late December at 128.83 yen in early Asian trade but then retreated to stabilize almost unchanged on the day at 128.30 yen.
Gold was flat at $914.05 per ounce in the spot market, still vulnerable to bouts of profit taking as a global equity market rally gains pace.
U.S. crude for April delivery slipped 0.6 percent to $48.84 a barrel after gaining 2.9 percent overnight after U.S. housing market data showed the biggest monthly gain in starts since 1990.
(Additional reporting by Aiko Hayashi in TOKYO; Editing by Kim Coghill)