Asian markets recover with euro as Italy fears ease

Hong Kong (AFP) –


Asian equities and the euro bounced back Thursday from the previous day's mauling as fears of turmoil in Italy were soothed by conciliatory noises from the country's two biggest populist parties.

The head of Italy's anti-establishment Five Star Movement said he was prepared to offer a compromise candidate for the finance ministry after President Sergio Mattarella's decision to veto an avowed eurosceptic led to the collapse of the fledgling coalition government.

Later, the rightwing League's leader was said to be willing to discuss the issue.

Wednesday's news provided relief to global markets that were sent spinning by the crisis in Italy -- the eurozone's third biggest economy -- which many feared could lead to fresh elections that could essentially become a referendum on euro membership.

US and European markets rallied while the euro jumped after wallowing around 10-month lows against the dollar, helped by a surprise surge in German inflation.

"What a difference a day makes," said Greg McKenna, chief markets strategist at AxiTrader.

"My hypothesis that the players... got the shock of their lives from the market's reaction to their posturing and the turmoil that ensued has proved correct."

"Italy may not be headed for a summer election. And that means the EU may not face a referendum on its future. Phew, storm in a teacup, nothing to see here, move along, please. At least that's the take markets appear to go with last night."

The gains continued in Asia, with Tokyo ending 0.8 percent higher, while Sydney added 0.5 percent, Singapore climbed 0.3 percent and Seoul put on 0.6 percent.

Hong Kong added 0.9 percent and Shanghai finished up 1.8 percent, supported by data indicating a bigger-than-expected rise in Chinese factory activity in April. Wellington, Kuala Lumpur and Taipei were also comfortably higher.

In early European trade Milan gained 0.5 percent, building on the more than two percent rise Wednesday, while London and Paris each rose 0.2 percent. Frankfurt gained 0.1 percent.

- Volatility warning -

Oil prices were down slightly but holding up after they also rallied Wednesday in response to a report that said OPEC would likely lift output gradually, soothing concerns about a new supply glut.

Crude markets have been hammered since OPEC kingpin Saudi Arabia and Russia last week indicated they could lift a cap on production, which has supported prices for two years, as an oversupply crisis eases.

Investors are now looking forward to the release Friday of key US jobs figures, which could provide some idea about the Federal Reserve's plans for raising interest rates.

Payrolls firm ADP estimated US private sector job growth at 178,000 in May, down from 204,000 in April and slightly below analysts' expectations.

However, while sentiment is positive, analysts warned that ongoing geopolitical issues and the unresolved China-US trade row continue to dog trading floors.

"We are going to be filled with tremendous uncertainty over the course of the summer," David Ader, chief macro strategist at Informa Financial Intelligence, told Bloomberg Television.

"If you look at things like the various economic surprise indices out there they have been slowing down, but on the other hand you still have a Fed hike coming in June. I see a lot of uncertainty, which results in a lot of volatility."

- Key figures around 0720 GMT -

Tokyo - Nikkei 225: UP 0.8 percent at 22,201.82 (close)

Hong Kong - Hang Seng: UP 0.9 percent at 30,334.47

Shanghai - Composite: UP 1.8 percent at 3,095.47 (close)

Milan - FTSE MIB: UP 0.5 percent at 21,900.01

London - FTSE 100: UP 0.2 percent at 7,707.70

Euro/dollar: UP at $1.1677 from $1.1664 at 2100 GMT

Pound/dollar: UP at $1.3310 from $1.3281

Dollar/yen: DOWN at 108.70 yen from 108.91 yen

Oil - West Texas Intermediate: DOWN 15 cents at $68.06 per barrel

Oil - Brent Crude: DOWN 26 cents at $77.24 per barrel

New York - Dow Jones: UP 1.3 percent at 24,667.78 (close)