September 16, 2011 / 09:58 IST
Asian stocks posted early gains on Friday, as the relatively stable euro ahead of a European finance ministers meeting reflected hopes for a big policy move to fight a debt crisis.
Coordinated action by major central banks around the world to ensure European banks have access to dollar funding, at a time when some institutions have been shut out of short-term lending markets, has raised speculation that policymakers may be ready to take more steps to hold the euro zone together.
Weakness in Asian currencies as foreign investors kept taking profits on their regional bets and thin equity volumes, however, suggest investors remain sceptical the crisis can be solved with band aid efforts, such as providing emergency funds so banks can get through the year.
"Obviously it's not a long-term solution, we need to see some resolution to the sovereign debt issue to give market confidence we'll have stronger growth over the medium-term," said Spiros Papadopoulos, a senior market economist at National Australia Bank.
"Certainly these policy measures will help improve confidence in the short-term," he added.
Japan's Nikkei was up 1.8%, climbing above a steep trendline formed off intra-day highs in August and September.
The rally may fizzle though ahead of a three-day weekend in Japan that may prompt some players to take profits, Hiroichi Nishi, general manager at SMBC Nikko Securities in Tokyo, said.
"The market will likely be stronger in morning trade, and it may shed gains in the afternoon as investors remain cautious before the euro zone ministers' meeting on Friday and Saturday," he said.
The benchmark MSCI index of Asia Pacific stocks outside Japan rose more than 2%, with gains mostly spread between technology and commodity-related shares.
The index has rebounded more than 4% from a 14-month low hit on Wednesday.
This week has seen hedge funds of all stripes and mutual funds selling Asian currencies at a rapid pace and the move continued on Friday in spite of the stable euro.
The euro slipped 0.2% to USD 1.3850 though was actually up 1.9% on the week, with the swift move up through USD 1.3750 making traders nervous about opening bets against the currency ahead of the ECOFIN meeting and with the next Federal Reserve meeting on Sept 20-21.
The weakness in Asian currencies has spilled over to the Australian dollar because of the antipodean currency's use as a play on investor risk-taking.
The Australian dollar was down 0.2% to USD 1.0300 and has fallen 1.2% this week.
Spot gold prices slid 0.5% to USD 1,779.79 an ounce, on course for the biggest weekly decline since May.
The combination of resilient equities, a rebound in the euro and a bearish double-top chart pattern in gold have combined to cast a shadow on the haven asset.
