Asian shares climbed to a three-week high on Thursday on comments by Federal Reserve Chairman Ben Bernanke that highly accommodative monetary policy would be needed for the foreseeable future, and the dollar stabilized.
Financial markets have recently sold off on concerns that the Fed may begin to scale back its USD 85 billion a month bond-buying program as soon as September.
But Bernanke's remarks, which played down the strength of last week's June payrolls report, prompted investors to reassess the risk of an early end to the Fed's program. They cut long dollar positions and sent US Treasuries prices higher.
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Wall Street flat after Fed minutes, but Bernanke lifts futures"I was pretty shocked with this selloff this morning. Obviously, Bernanke kicked it all off, but it was a bit of a delayed reaction," said Bart Wakabayashi, head of forex at State Street Global Markets in Tokyo.
"I'm hearing there were some margin calls, stop losses triggered there, and it moved down, so it seems like it's pretty thin and maybe some Asian players were trying to unwind their dollar longs.
"But it does seem like a bit of an overreaction. Having said that, it's a bit surprising, all of a sudden, the change in the tone of Bernanke, so it's a whole new world all of a sudden."
The dollar index added 0.3 percent after dropping 1.8 percent on Wednesday - a magnitude not seen since 2008-2009 at the height of the global financial crisis.
The euro surged 1.4 percent after earlier hitting a three-week high of USD 1.32085. Against the yen, the dollar eased 0.3 percent after falling to a two-week low of 98.20 yen.
Commodity currencies also jumped against its US peer with the Australian dollar climbing as high as USD 0.9300, putting further distance from a 34-month trough of USD 0.9036 plumbed just last week.
The Australian dollar was also aided by a surprise increase in Australian employment in June, a result that may lessen the chance of the central bank lowering interest rates further in the short-term.
Relief Rally"Those who had expected that the Fed's tapering could start as early as September were relieved that it would come later than that," said Kyoya Okazawa, head of global equities at BNP Paribas in Tokyo.
Asian shares, as measured by MSCI Asia-Pacific ex-Japan index, jumped 1.7 percent to a three-week high, while Seoul shares surged 2 percent and Hong Kong's Hang Seng Index rose 1.6 percent.
But as the yen strengthened, Tokyo's Nikkei share average underperformed other Asian markets and was flat, ahead of the outcome of a Bank of Japan's policy meeting later on Thursday.
The BOJ is set to stand pat though it will upgrade its view of the economy on expectations that a weak yen and its massive monetary stimulus will be enough to offset the hit from slowing Chinese growth.
Underscoring the improving business sentiment, Japan's core machinery orders rose 10.5 percent in May from the previous month.
US crude oil prices slipped 0.4 percent after earlier trading as high as USD 106.95 a barrel, their highest level since March 2012, and after Wednesday's 2.9 percent jump, their biggest one-day rise in more than two months as US data showed the biggest two-week decline on record in oil stockpiles.
Gold climbed 1.5 percent to a two-week high and was on track for a fourth straight day of gain.
Copper prices gained 1.8 percent to exceed USD 6,900 a metric ton (1.1023 tons), extending the previous session's 1 percent rise as the dollar softened.
Yields on benchmark 10-year US Treasuries eased 8.3 basis points to 2.5907 percent in Asian trade, sharply off a 23-month peak of 2.755 percent touched on Friday after the stronger-than-expected payrolls data.
Tracking the performance of US Treasuries, 10-year Japanese government bond yield slipped 1 basis point to 0.840 percent.
