* MSCI Asia ex-Japan adds 0.4 pct, Nikkei trims gains to
rise 0.2 pct
* Euro falls, stays above $1.26 vs dollar
* Firmer Tankan nudges yen up slightly vs dollar
* Weak China PMI pushes crude oil futures down $1
By Chikako Mogi
TOKYO, July 2 (Reuters) – Asian shares rose on Monday with
sentiment brightening at the start of the third quarter after
Europe leaders agreed to shore up the region’s troubled banks,
but the euro gave up some of its gains amid concerns that the
debt crisis is still far from over.
MSCI’s broadest index of Asia-Pacific shares outside Japan
added 0.4 percent, after soaring 2.7 percent on
Friday for its biggest one-day rise in more than six months. The
MSCI Asia ex-Japan share index ended April-June down 7.4
percent, after rising for the previous two quarters.
Japan’s Nikkei average trimmed early gains to stand
up 0.2 percent, but kept above the key 9,000 level, which it
reclaimed on Friday for the first time in 7 weeks.
Strong short-covering spearheaded Friday’s broad-based rally
as market players who had not expected European leaders to
strike any fresh deals scrambled to cover negative bets, and
fund managers remained cautious of the sustainability of
“risk-on” momentum.
“Even though markets went up significantly on Friday night,
we are still fairly cautious as to whether that’s a sustainable
move, given that the announcements from the summit were probably
better than the actual detail of what’s been delivered,” said
Andrew Pease, Sydney-based chief investment strategist at
Russell Investments Asia Pacific.
The euro fell 0.4 percent to $1.2617, after spiking
1.7 percent against the dollar to a high of $1.2693 on
Friday, its biggest one-day jump in eight months.
“Their agreement offered a direction but details are yet to
be worked out, and that will limit the euro’s upside,” said Yuji
Saito, director of foreign exchange at Credit Agricole Bank in
Tokyo. “Still, with concerns over the euro zone’s debt crisis
easing for now, the focus this week turns to U.S. data,
including the monthly jobs report.”
The dollar eased 0.1 percent to 79.79, after a
closely watched Bank of Japan survey on Monday showed big
Japanese manufacturers’ sentiment improved in the second quarter
from the previous quarter.
FUNDING CAPACITY CONCERNS
Euro zone leaders agreed on Friday to let their rescue fund
inject aid directly into stricken banks from next year and
intervene on bond markets to support troubled member states.
The step relieved credit market strains that had threatened
to force struggling Spain into seeking an international bailout,
pushing Spanish and Italian debt yields sharply lower.
EU leaders also pledged to create a single banking
supervisor based around the European Central Bank in a landmark
first step towards a European banking union.
But Russell Investments’ Pease and others were less than
convinced that the agreement would be implemented smoothly,
paying particular attention to the size of rescue funds which
they see as insufficient to bail out needy member states.
“There’s still a long way to go and the sorts of things that
we would need to make us confident that Europe is no longer a
huge hindrance on markets is a credible plan to provide a
liquidity backstop for sovereigns and a big enough fund to
convincingly recapitalise banks across the region,” Pease said.
The EU’s joint statement said that the euro zone’s temporary
EFSF and permanent ESM rescue funds would be used “in a flexible
and efficient manner in order to stabilise markets” to support
countries that comply with EU budget policy recommendations.
“In theory if these funds were sufficiently capitalised
there would be cause for celebration. Unfortunately, they are
not sufficiently capitalised and therefore their is no cause for
celebration,” said Jeff Sica, president of SICA Wealth
Management, which manages more than $1 billion in client assets,
real estate and private equity holdings.
“The irony of this … is that those intended to fund it are
the very ones who need it.”
EUROPE, US PMI
U.S. crude fell more than $1 or 1.5 percent to $83.72
a barrel, after shooting up $7.27 on Friday, the fourth largest
daily gain in dollar terms since the contracts were launched.
Brent shed more than $1, falling 1.7 percent at $96.10 a
barrel after adding more than $6 for its biggest one-day rise
since April 2009 on Friday.
Oil futures were hit by data over the weekend showing
China’s government purchasing managers’ index fell to 50.2 in
June to a seven-month low, suggesting growth in manufacturing
sector activity at big, state-backed firms was close to
stalling. Shrinking new orders and the steepest fall in export
orders since December pointed to no immediate pick-up for the
world’s second-biggest economy.
A private sector survey showed on Monday that China’s
factory activity at smaller, private-sector companies also
shrank in June at the fastest pace in seven months as new export
orders tumbled to depths last seen in March 2009.
Later on Monday, purchasing managers’ data is due to be
released from Europe and the United States, as well as India.
Asian credit markets firmed, pushing the spread on the
iTraxx Asia ex-Japan investment-grade index
narrower by 4 basis points.
