Asian shares rise after Yellen stresses policy flexibility

By Lisa Twaronite

TOKYO (Reuters) – Asian stocks rose on Wednesday, taking their cues from Wall Street’s gains after Federal Reserve Chair Janet Yellen suggested the Fed would not rush into raising interest rates.

Shares extended gains after a survey of Chinese factory activity eked out a rise to a four-month high in February, though export orders shrank at their fastest rate in 20 months.

Spreadbetters predicted an uneven start to European trading, with Britain’s FTSE 100 <.FTSE> seen opening 7 points lower, or down 0.1 percent; Germany’s DAX <.GDAXI> expected to open 17 to 18 points higher, or up 0.2 percent; and France’s CAC 40 <.FCHI> called opening flat to 1 point higher, or up 0.02 percent.

“European markets look set to open somewhat mixed, after a slightly stronger-than-expected Chinese HSBC manufacturing PMI number for February,” Michael Hewson, chief strategist at CMC Markets in London, said in a note to clients.

The flash HSBC/Markit Purchasing Managers’ Index (PMI) inched up to 50.1, above the 50-point level that separates growth in activity from a contraction on a monthly basis.

It beat consensus estimates for a reading of 49.5 even as China’s manufacturers still faced considerable risks from weak foreign demand and deepening deflationary pressures.

“Domestic economic activity is likely to remain sluggish and external demand looks uncertain,” said Qu Hongbin, HSBC’s chief economist in China. “We believe more policy easing is still warranted at the current stage to support growth.”

But combined with Yellen’s overnight remarks, the PMI headline figure gave some solace to investors worried about a deteriorating global outlook.

Yellen told the Senate Banking Committee that the U.S. central bank was preparing to consider interest rate hikes “on a meeting-by-meeting basis.”

That was a subtle change of emphasis in how the Fed has been speaking about its plans, as it suggests a hike could still come as early as June but a later date for a rate increase is possible against the backdrop of weak U.S. inflation and a sluggish global economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was up about 0.8 percent, though Japan’s Nikkei stock average <.N225> snapped a five-day winning streak and edged down 0.1 percent after closing at a 15-year high in the previous session.

China shares softened as trading resumed after the week-long Lunar New Year holiday break, with the Shanghai Composite Index <.SSEC> down 0.7 percent.

U.S. stocks ended higher on Tuesday, with the Dow Jones industrial average <.DJI> and the S&P 500 <.SPX> hitting records as many investors took the Fed’s subtle change in emphasis to mean that higher rates were not on the immediate horizon.

A backdrop of weakening global growth has also kept investors on the edge about the Fed’s plans, with some worrying a premature start to the U.S. rate hike cycle could dent momentum in the U.S. economy even as Europe and China continue to struggle.

The dovish interpretation was far from unanimous, however, and some left their June rate-hike predictions intact.

U.S. data on Tuesday painted a mixed picture. Home prices and the services sector supported the view of an ongoing U.S. expansion, but a measure of consumer confidence fell.

Because Yellen gave no sign of an imminent rate increase, investors piled back into U.S. Treasuries, sending two-year yields to 2-1/2-week lows <US2YT=RR> overnight and reducing the appeal of the dollar.

The dollar initially rose to a two-week high of 119.84 yen <JPY=EBS> after Yellen’s comments, before those gains unraveled. It was down about 0.1 percent at 118.81 yen.

News on Tuesday that euro zone partners had approved Greece’s reform plan, a requirement for the cash-strapped nation to receive a four-month extension to its bailout, helped the euro rise off a Tuesday session low of $ 1.1288 <EUR=EBS>.

The European unit was up about 0.1 percent on the day at $ 1.1351, but edged down slightly against the yen to 134.85 <EURJPY=>.

Crude oil overcame pressure from expectations that this week’s reports will show U.S. crude inventories rose again, garnering support from news of a shutdown of Libyan oilfields.

Brent <LCOc1> added about 0.4 percent to $ 58.87 a barrel, though U.S. crude <CLc1> edged down slightly to $ 49.27.

Spot gold <XAU=> added about 0.9 percent on the day to $ 1,211.30 per ounce after it plumbed a seven-week low on Tuesday, before rebounding as the U.S. dollar weakened after Yellen’s testimony.

(Additional reporting by Koh Gui Qing in Beijing; Editing by Shri Navaratnam & Kim Coghill)