Asia stocks advance before Fed, dollar treads water

By Shinichi Saoshiro

TOKYO (Reuters) – Asian stocks shook off a slow start and rose on Wednesday, led by China shares, while the dollar marked time as markets waited for the Federal Reserve’s policy statement for clues to when U.S. interest rates will rise.

Following Asia’s lead, spreadbetters forecast a slightly higher open for Britain’s FTSE <.FTSE>, Germany’s DAX <.GDAXI> and France’s CAC <.FCHI> although caution towards the Fed’s statement due later in the day was expected to limit gains.

Bouncing back from an earlier dip, MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.5 percent.

Chinese shares, already sitting atop multi-year highs, rallied for a sixth straight day. Soft Chinese data failed to dampen sentiment and instead raised hopes Beijing would make fresh stimulus moves.

The Shanghai Composite Index <.SSEC> reached its highest since May 2008, while Hong Kong’s Hang Seng, South Korea’s Kospi and Malaysian and Thai stocks also gained.

Japan’s Nikkei <.N225> erased early losses to rise 0.6 percent and reach a fresh 15-year high. Australian shares also clawed out of the red and were flat.

“We expect to see a tug-of-war between the bulls and the bears,” said Hue Frame, senior adviser at Atlantic Pacific Securities in Sydney.

The bulls think there won’t be a rate rise in the U.S. this year while the bears see one coming “over the next few months,” he said.

The Fed statement is due at 1800 GMT, followed 30 minutes later by a news conference with Chair Janet Yellen.

Financial markets are most interested in whether the U.S. central bank will remove the word “patient” from its remarks on raising rates.

A number of strong U.S. employment reports have increased wagers over the past few weeks on the Fed tightening as early as June.

The prospect of the Fed hiking rates in the U.S. summer and drawing liquidity away from the rest of the world has caused the dollar’s peers to tumble and triggered tumult in emerging market equities.

U.S. debt yields have risen, while euro zone bond yields sank to record lows as the European Central Bank implemented its quantitative easing program.

The Fed meeting “could well produce some passing volatility but have little net impact, given that policy is sure to be on hold, while Chair Yellen should use plenty of caveats on the policy outlook in her press conference,” Sean Callow, a senior currency strategist at Westpac in Sydney, wrote clients.

“The removal of the word ‘patient’ from the statement has been so well flagged that it would be a true shock (slamming USD) if it is retained.”

The euro was steady at $ 1.0594 , having crawled back from a 12-year low of $ 1.0457 plumbed on Monday as dollar bulls held back before the Fed’s statement.

The dollar index <.DXY> stood little changed at 99.615. Over the past week, it had advanced to a 12-year high above the 100.00 threshold, thanks in part to the euro tumbling on the European Central Bank’s quantitative easing scheme.

At 0550 GMT, the dollar was at 121.38 yen , flat for the day. It has been confined to a narrow range after touching an eight-year peak of 122.04 last week.

In commodities, U.S. crude oil lingered near six-year lows as fears of a large inventory pile buildup added to the prospect of more oil entering the market if sanctions on Iran are dropped on a nuclear deal being negotiated. [O/R]

U.S. crude was down 83 cents at $ 42.63 a barrel , in reach of the six-year trough of $ 42.41 struck overnight.

(Additional reporting by Swati Pandey in Sydney; Editing by Eric Meijer)