Stocks recover, bonds calmer after sell-off

By Staff

Published: Monday, June 11, 2007, 16:33 [IST]

Singapore, June 11: Most Asian stock markets bounced back on Monday after a sharp sell-off last week on fears of rising global interest rates, while rising government bond yields in Japan helped lift insurers, like Mitsui Sumitomo.

Global markets have calmed since investors dumped both stocks and bonds last week on concerns about rising borrowing costs, underlined by rate rises in Europe and New Zealand.

Japanese government bonds (JGBs) took support from a recovery by U.S. Treasuries on Friday that was sparked by bargain-hunting and short-covering after benchmark yields had briefly jumped to near five-year highs.

Analysts said with markets calmer, investors would resume some riskier trades, such as borrowing in the low-yielding yen to fund the purchase of higher-yielding assets.

The dollar hovered near a two-month high against the euro at 1.3352, holding on to gains made late last week when the benchmark U.S. Treasury yield rose dramatically.

The dollar was steady at around 121.54 yen , after sliding against the Japanese currency last week.

''If you look at risk appetite for the dollar at the moment, it's unlikely that last week's dollar selling will continue,'' said Junya Tanase, a forex strategist at JPMorgan Chase Bank.

Share prices rebounded from the sell off late last week, taking their cue from Wall Street on Friday, where both the Dow Jones industrial average <.dji> and the Nasdaq <.ixic> firmed more than 1 percent.

Japan's Nikkei average <.n225> rose 0.5 percent by midsession, helped by gains in exporters such as Sony Corp. .

Insurers were also in demand, with Mitsui Sumitomo Insurance Co.

Ltd. up 4.8 percent. A sharp rise in Japanese government bonds since May raised the prospects of higher revenues for insurers.

''Investors are generally encouraged by solid corporate earnings outlooks and rising yields, which could indicate a healthy economy,'' said Hiroyuki Fukunaga, chief strategist at Rakuten Securities.

Most other stock markets in the region notched up gains, with Hong Kong's Hang Seng <.hsi>, Taiwan's benchmark index <.twii>, and Singapore's Straits Times <.sti> up between 0.6-1.1 percent.

MSCI's broadest index of shares elsewhere in Asia <.msciapj> was up 0.4 percent by 0215 GMT.

SOUTH KOREA SLIPS

But the benchmark Korea Composite Stock Price Index (KOSPI) <.ks11> lost earlier gains to slip 0.6 percent, dragged lower by losses in Doosan Heavy Industries and Construction Co. Ltd.

following a negative research note.

Trade in Korea was expected to remain volatile ahead of the simultaneous expiry on Thursday of stock options, stock index options and stock index futures, an event known as triple witching day, analysts said.

A fall in JGBs eased on Monday thanks to a tentative recovery in the U.S. Treasury market late on Friday.

The June 10-year futures was down 0.14 point at 131.73 at 0210 GMT, holding above the 11-month low of 131.58 hit on Friday.

The benchmark 10-year yield rose 1.5 basis points at 1.905 percent, although it was still below the 10-mth high of 1.920 percent hit the previous session.

Bond investors reacted little to revised data showing the Japanese economy grew faster in January-March than initially reported. A stronger figure had been factored in already and did not alter expectations for a BOJ hike as soon as the third quarter, traders said.

Oil steadied after falling more than Singapore, June 11: Most Asian stock markets bounced back on Monday after a sharp sell-off last week on fears of rising global interest rates, while rising government bond yields in Japan helped lift insurers, like Mitsui Sumitomo.