The euro surged to a two-month high and Asian stocks were set for their best gains in over two weeks on Thursday after a bullish company forecast fuelled optimism about the coming U.S. earnings season and underpinned a slow return by investors to riskier assets.
Further good news came with the release of Australian employment figures that surged well above forecasts, promising to boost household incomes and spending and pushing the Australian dollar to its highest since late June.
U.S. financial company State Street Corp said on Wednesday that quarterly earnings would far exceed expectations, providing a lifeline to investors after several weeks of dismal economic reports and propelling Wall Street to its biggest one-day gain in six weeks.
The MSCI index of Asia Pacific shares outside Japan rose 2.1 percent to its highest since June 29, and looked set for its best one-day performance since June 21, led by materials and financial shares.
Japan's benchmark Nikkei average rose 2.7 percent to 9,525 points, and appeared to be on target for its best one-day rise in over a month, with exporters especially strong performers.
But market watchers were wary about whether the gains would last, noting that the Nikkei was finding it difficult to extend its gains much past 9,500.
Recent attempts at rallies in many markets have quickly succumbed to profit taking, highlighting weak investor confidence and concerns that the global economic recovery may be losing momentum.
Strong company earnings reports and sales forecasts in coming weeks could soothe some of those fears.
There are probably a lot of individual investors who have been waiting for a day like today to lock in profits, said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.
The 9,500 level turned into resistance several times during June, so this could be one good level (for selling).
But others thought the rally might have further to go, and even Osakabe acknowledged that more short-covering could emerge after the Nikkei was pushed to a seven-month low on Tuesday.
It could easily be viewed as a bounce from an oversold market in equities and risk appetite, and most people will see it in that light, said Greg Gibbs, a currency strategist at Royal Bank of Scotland in Sydney.
But give it some time. They won't be immediately trying to sell it down, he said, referring to the rally in riskier assets.
Australian shares were the next strongest performer in the region after Japan, gaining 2 percent, with banks among the top gainers.
June Australian employment figures, released mid-morning, surged to 45,900, far above market forecasts of 17,500 in a Reuters poll, and the unemployment rate eased, reviving talk of an interest rate hike in the next few months and eroding arguments for a possible cut.
AUSSIE SHINES ON JOBS DATA
The data sent the Aussie dollar up more than half a U.S. cent and more than half a yen to its strongest levels since late June, and helped the euro breach resistance at $1.2673, although it quickly faltered at the highs.
The Aussie numbers came in monster. You couldn't fault any of the detail really: it was an all-round fairly strong number, said Sue Trinh, senior currency strategist at Royal Bank of Canada in Hong Kong.
Unsurprisingly the Aussie is up, with bill futures also coming off. This leaves the door wide open for a rate hike in August should CPI prove stronger than expected.
Australian consumer price data is due on July 28.
The Australian dollar rose to 0.8731 gaining around 1.2 percent on the day. It rose 1.8 percent against the yen
The euro climbed to a two-month high above $1.2665 and rose as far as $1.2688 on electronic trading platform EBS, breaking above resistance at $1.2673 that had been seen as a hurdle to further gains, but later fell back.
Most analysts in a Reuters poll believe it will stay weak against the dollar over the coming year as much of the euro zone struggles to reduce debt levels.
The survey of about 60 analysts, taken July 2-7, predicted the euro would fall to $1.24 in one month and $1.20 in three months, then to $1.18 in six months and in mid-2011.
Crude oil surged past $75 a barrel as earnings euphoria boosted shares, reinforcing overnight gains triggered by an industry report showing U.S. crude inventories plunged last week. By midday it had pared gains to around 0.7 percent and traded around $74.60 a barrel.
Gold extended its rebound, with spot gold rising to around $1,205 an ounce. (Additional reporting by Charlotte Cooper) (Editing by Kim Coghill)