HONG KONG, Oct 28 (Reuters) Asian stocks may scale new peaks this week if the U.S. central bank lowers interest rates and acts to soothe investor worries that a credit squeeze and housing slump could push the world's largest economy into recession.
But the odds are growing for another pullback in regional markets with the U.S. economy struggling, the dollar weakening and oil prices hitting fresh record highs.
Still, market watchers say the prospect of relatively stronger Asian growth and appreciating Asian currencies are reasons why investors have been flocking to invest in the region.
''Investors are extremely enthusiastic in taking advantage of the perception that this region is in better shape. Domestic conditions are positive,'' said Hong Kong-based Mark Konyn, chief executive, Asia Pacific, of Allianz RCM asset management unit.
''We saw growth numbers out of China that even with a margin of error, are pretty strong. Hong Kong's economy is doing well, so is Singapore. So the region overall is in pretty good shape.'' MSCI's measure of Asia Pacific stocks excluding Japan <.MIAPJ0000PUS> hit a record high on Oct. 26 and is up more than 70 percent this year.
MSCI's main world equity index <.MIWD00000PUS> has gained a more modest 14 percent and has still some way to go before returning to its Oct. 11 peak.
Earnings will remain a big focus this week, with Nippon Steel <5401.T>, the world's No.2 steelmaker, South Korea's top lender Kookmin Bank <060000.KS> and China's top offshore oil and gas producer CNOOC <0883.HK> among firms set to report.
The U.S. Federal Reserve's Open Market Committee holds a two-day meeting on Tuesday and Wednesday.
-- FACTORS TO WATCH (for week starting Oct 29) ** For Asian company earnings, see [ASIA/EQTY] ** Key U.S. earnings/data (for Wall Street report, see [.N]) Tuesday - Fed policy meeting (to Weds) - Oct consumer confidence data - Earnings: Colgate-Palmolive
''If more solid earnings announcements follow, the Nikkei average is expected to climb above 16,500 and keep that level,'' said Hiroyuki Fukunaga, chief strategist at Rakuten Securities.
''The market's attention will be on interest rate policies in Japan and the U.S. as both the Bank of Japan and the Federal Reserve have policy meetings,'' he said, adding the Nikkei average <.N225> is likely to trade between 16,450-16,900.
The Nikkei ended up 1.4 percent at 16,505 on Friday.
Monday - Nikko Cordial <8603.T> H1 results Tuesday - Sept jobless, household spending data - Earnings: Nippon Steel <5401.T>, Mitsubishi Motors <7211.T>, Matsushita Electric Industrial <6752.T> Wednesday - Bank of Japan policy meeting - Mitsubishi Corp <8058.T> H1 results Friday - Mazda Motor Corp <7261.T> H1 result -- ** IN KOREA (for Seoul report, see [.KS]) Stocks are likely to remain volatile as investors look ahead to the Fed's policy meeting at which it is expected to cut rates to mitigate the impact of the subprime mortgage crisis.
Investors will also closely watch a string of local economic data, including October exports, for clues on how the slowing U.S. economy has been affecting demand for South Korean goods, and results from heavyweights such as Kookmin Bank.
''The market will struggle for direction, keenly reacting to news from the U.S. It's hard to predict,'' said Rho Y.S., market strategist at Hyundai Securities.
Monday - Earnings: Kookmin Bank <060000.KS>, Hyundai Mobis <012330.KS> Tuesday - Sept/Q3 industrial output 1:30 p.m. (0430 GMT) - Earnings: Korean Air Co <003490.KS>, Ssangyong Motor Co <003620.KS> Wednesday - Sept/Q3 service sector output (0430 GMT) - Earnings: Samsung Fire and Marine Insurance <000810.KS> Thursday - Oct import and export data; CPI - Earnings: Woori Financial Group <053000.KS> - Hyundai Motor Co <005380.KS> and other South Korean automakers October sales data Friday - Earnings: Shinhan Financial Group <055550.KS> -- ** IN HONG KONG (for Hong Kong report, see [.HK]) All eyes will be on the Federal Reserve, with investors hoping for further rate cuts, which should drive Hong Kong property developers to new highs. Hong Kong is sensitive to U.S. rate movements because its currency is pegged to the U.S.
''If the Fed trims rates by 25bps, the market will continue to rally,'' said Steve Leung, director at UOB Kay Hian Holdings.
Monday - Earnings: Angang Steel <0347.HK>, China CITIC Bank <0998.HK>, China Eastern Airlines <0670.HK>, China Oilfield Services <2883.HK>, COSCO Pacific Ltd <1199.HK> Tuesday - Earnings: Bank of China <3988.HK>; Bank of Communications <3328.HK>; BOC Hong Kong (Holdings) <2388.HK>; CNOOC <0883.HK> Thursday - Sept retail sales - Earnings: Lenovo Group <0992.HK> -- REUTERS SZ PM0345