Asian equities rose to a fresh seven-month high on Thursday, with Hong Kong shares playing catch-up to other markets' gains as trade resumed after its three-day Lunar New Holiday.
MSCI's broadest index of Asia-Pacific shares outside Japan climbed 0.9% to 557.65 and was set for its fifth straight day of gains.
The index has gained 10% so far in January, buoyed by expectations of a strong economic rebound in China and by hopes that most major central banks are nearing an end to hefty rate rises.
Trading was thin on Thursday with Australia closed for a holiday and certain parts of Asia, including China, still away for the Lunar New Year.
The buoyant mood looked set to continue in Europe, with the Eurostoxx 50 futures up 0.58%, German DAX futures 0.58% higher and FTSE futures up 0.30%.
Traders betting that the U.S. Federal Reserve will soon tone down its aggressive rate hike policy got a lift after the Bank of Canada on Wednesday raised rates but became the first major central bank to say it would likely hold off on further increases for now.
After a series of super-sized rate hikes last year, the U.S. central bank is now largely expected to raise rates by a smaller 25 basis points next week on signs that inflation is cooling.
While analysts expect the Fed to eventually pause its interest rate hikes this year, for some the meeting in February is a bit too early for that.
"We believe the Fed will make a special effort to avoid suggesting that the end of the tightening process is in sight," said Kevin Cummins, chief economist at NatWest Markets.
Cummins said it was likely that the committee would go out of its way to keep the official policy statement free of anything that could be construed as a suggestion that a pause might be under consideration just yet.
The spotlight will be on the U.S. GDP data due later on Thursday. The report could mark the last quarter of solid growth before the lagged effects of the Fed's jumbo rate hikes kick in.
"The U.S. GDP release today will be of key interest to gauge whether the market expectations shifting in favour of a soft landing rather than a recession can continue to hold," Saxo strategists said in a note to clients.
The prospect of a less aggressive pace in monetary tightening has stoked expectations of a so-called soft landing - a scenario in which inflation eases against a backdrop of weakening but still resilient economic growth.
Hong Kong's Hang Seng Index surged 1.7% in its first day of trade in the Year of the Rabbit, while Japan's Nikkei fell 0.25%.
Investor attention will also be on the Bank of England and European Central Bank meetings due next week, with traders looking for clues as to when the central banks are likely to turn dovish.
In the currency market, the dollar index, which measures the U.S. currency against six major rivals, was at 101.64, not far off the eight-month low of 101.51 it touched last week.
The Japanese yen strengthened 0.22% to 129.32 per dollar, while sterling was last trading at $1.2394, down 0.05% on the day.
The yield on 10-year Treasury notes was down 2.1 bps to 3.441%, while the yield on the 30-year Treasury bond was down 3 bps to 3.595%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -68.7 bps. The inversion of this curve has predicted eight of the last nine recessions, analysts have said.
Oil prices were steady after U.S. crude stocks rose less than expected. U.S. West Texas Intermediate (WTI) crude rose 0.09% to $80.22 per barrel, while Brent was at $86.05, down 0.08% on the day. [O/R]
Gold prices touched a nine-month high, with spot gold at $1,945.55 per ounce, after hitting $1,949.09 earlier in the day.
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