Asia joins global stocks rally after ECB signals more stimulus

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By Lisa Twaronite and Nichola Saminather

Asia extended a global stocks rally on Friday after the European Central Bank signaled its readiness to inject more stimulus, helping the dollar scale a fresh two-month peak against the euro.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 1.6 percent, and set for a gain of 0.8 percent for the week.

Japan’s Nikkei stock index .N225 was up 2.3 percent, poised for a weekly increase of 3.2 percent. The Shanghai Composite index .SSEC added 0.3 percent, on track for a weekly decline of 0.4 percent.

After the ECB held policy steady at its meeting on Thursday as widely expected, central bank chief Mario Draghi told a news conference that ECB policymakers were “open to the full menu of monetary policy” to stoke the euro zone economy as needed.

The euro marked its largest one-day percentage drop against the dollar in nine months on Thursday.

The common currency gained 0.1 percent to $1.1116 on Friday, after earlier falling to a two-month nadir of $1.1072 EUR=.

“When (ECB executive board member Benoit) Coeure said in May that the ECB could expand its QE, the euro fell below $1.10. But what’s different now from that time is the U.S. monetary policy outlook,” said Minori Uchida, chief currency strategist at the Bank of Tokyo-Mitsubishi UFJ.

“While Fed officials are talking about the possibility of a rate hike in December, whether it is really possible will be a focus next week,” he said.

The Fed will meet on Tuesday and Wednesday next week, after its policymakers opted to hold interest rates steady last month, amid concerns that a slowing global economy, particularly in China, could pose risks to the U.S. economic outlook.

Sean Callow, senior strategist at Westpac in Sydney, said it is “surprising” that markets are still pricing in a 30 percent chance that the Fed will hike by December.

“How likely is it that the Fed will be optimistic enough about the emerging market outlook that worried them in September to raise rates in December?” Callow wrote in a note to clients on Friday.

The euro’s plunge helped lift the dollar index to a one-month high. After rising as high as 96.579 in early Asian trade, it was last holding at 96.308 .DXY, up 1.9 percent for the week.

The dollar was also steady against the yen at 120.69 yen JPY=, after touching a one-month high of 120.99 yen earlier.

Crude oil prices edged up, taking heart from the improved risk sentiment but still pressured by concern about high U.S. crude inventories and the stronger dollar.

Brent LCOc1 added 0.8 percent to $48.44 a barrel, but was on track for a weekly loss of 4 percent. U.S. crude CLc1 added 0.5 percent to $45.60 but was down 3.5 percent for the week.

The stronger greenback also weighed on spot gold prices. Gold XAU= was last trading at $1,168.4 an ounce after touching a nine-day low of $1,162.50 overnight, and was down 0.8 percent for the week.

(Reporting by Lisa Twaronite and Nichola Saminather; Additional reporting Hideyuki Sano in Tokyo.; Editing by Shri Navaratnam)

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