Asian stocks flare up on yuan moves

Most of the markets log in gains of around 2-3% to start the week in an upbeat manner

Asian markets had a very good time in the first session of the week after the People's Bank of China signaled over the weekend that it would end the yuan's de-facto peg to the U.S. dollar. The DOW futures rallied as the US dollar plummeted to a six week low and stocks were flying across Asia before the US currency took about turn as traders cut their Euro longs ahead of an all important speech by the ECB chairman Jean Clause Trichet. DOW futures erased their gains and stocks came off their highs. Commodities also slipped though crude oil continued to brace up gains, holding above $79 per barrel mark.




Greece's central bank governor has said the support package provided by the European Union and the International Monetary Fund will prove to be a "catalyst" and ensure that Greece emerges stronger from the crisis, according to media reports.

Over the weekend, China's central bank announced plans to loosen the yuan's de-facto peg to the greenback. It also ruled out a one-time revaluation and said any strengthening of its currency would be gradual. The central bank indicated it's abandoning the 6.83 yuan peg to the dollar adopted to shield exporters during the global financial crisis.

Stocks in Japan ended higher on optimism about global economic recovery. Positive trading across other markets in the region and positive closing on Wall Street on Friday, also pushed the market up. The benchmark Nikkei 225 Index rallied 242.99 points, or 2.43%, to 10,238, while the broader Topix index of all First Section issues jumped 17.85 points, or 2.02%, to 902.

On the economic front, a report released by the Ministry of Trade, Economy and Industry revealed that Japanese all industry activity improved in April after falling for two straight months. As per the report, the indicator rose 1.8% month-on=month in April following 0.7% drop in the previous month. However, the monthly growth rate was smaller than the expected 2%. Year-on-year, all industry activity rose 3.8%, down from 4.9% in March. The overall growth rate was pulled down by 17.2% annual fall in construction.

The Australian stocks ended a five-week high after China after the Australian federal government struck an A$11 billion compensation deal with Telstra over the planned national broadband network. The benchmark S&P/ASX 200 closed up 60.7 points, or 1.3%, at 4612.6, after hitting 4622.0 in early trading.

On economic front, sales of new motor vehicles in Australia fell by more than 3% in May after an outsized jump the previous month, but remained sharply higher for the year in a promising sign of consumer resilience.

Data from the Australian Bureau of Statistics on Monday showed that 88,484 vehicles were sold on a seasonally adjusted basis in May, down 3.2 %from 91,374 in April. That followed a 9.0 %surge in April and still left sales 16.4 %higher than in May last year.

Sales of sports utility vehicles increased by 27.0 %compared to the same month last year, while sales of passenger vehicles rose 17.9 %and other vehicles by 3.0 percent. However, in the year to April, new motor vehicle sales rose 28.7%.

Chinese markets were the obvious benedictory of the central bank moves, rising high to end at three-week top. The yuan moves signalled the government's confidence in the economy and the. The Shanghai Composite Index rose to 2,586.2 points, scoring its best daily gain in four weeks.

In Mumbai, the key indices surged after China said over the weekend that it will allow its currency more freedom to move against the US dollar, which should spur its economic growth. An end to the row over regulation of Unit Linked Insurance Products (Ulips), aided the rally on the domestic bourses. Metals and realty shares rallied. But, IT pivotals underperformed the Sensex as rupee rose to one-month high against the dollar. The 30-share BSE Sensex provisionally jumped 292.33 points or 1.66%, up 208.34 points from the day's low and off 56.47 points from the day's high. All the sectoral indices on the BSE were in positive zone and the market breadth was strong.

In other markets, Hang Seng in Hong Kong jumped 3.08%, Straits Times in Singapore rose 1.84% while TSEC in Taiwan moved up 1.90%.

In currencies, dollar rose near 1.2400 after plummeting to lows of 1.2468 against the Euro. The US dollar advanced in the mid London trades as the risky assets trimmed some of the gains and the DOW futures came off their highs. The rally in Euro came to an abrupt halt after hitting a six-week high of 1.2466. The single currency dipped as the markets awaited for the speech of the ECB chairman Jean Claude Trichet who is due to testify on Economic and Monetary Affairs before the European Parliament. Commodities eased with copper in particularly erasing most of the intraday gains. Crude managed to stay afloat though, holding above $79 per barrel mark.