Asian markets cheer Spain's plans for reform (+video)
Asian stocks edge up as debt-laden Spain unveils budget plans with sharp cuts in government spending. Euro and Japanese yen climb while dollar falls.
Asian shares rose on Friday on hope economic reform and budget plans unveiled by Spain will help the debt-saddled nation manage its debt imbalances, in a move seen as an effort to preempt the likely conditions of international assistance.
Global stocks, the euro and commodities rose while the dollar fell on Thursday after Spain announced a detailed timetable for economic reform and a budget based mostly on sharp spending cuts rather than tax hikes.
Madrid is talking to European Union authorities about the terms of a possible aid package, which would pave the way for initiating the European Central Bank's bond-buying programme aimed at easing the country's borrowing strains.
The MSCI index of Asia-Pacific shares outside Japan was up 0.2 percent, after jumping on Thursday on a spike in Chinese shares as speculation for stimulus spread. Australian shares were nearly flat and South Korean stocks rose 0.5 percent.
Japan's Nikkei stock average opened up 0.4 percent after touching a two-week low the day before.
The euro traded at $1.2912, recovering from a two-week low of $1.2828 touched on Thursday.
The yen hit its highest in nearly two weeks against the dollar of 77.56 yen earlier on Friday, after the dollar index measured against a basket of currencies fell 0.4 percent on Thursday for its biggest daily drop in two weeks.
"Risk is primed for a comeback, and the AUD (Australian dollar) may be the biggest beneficiary," Neal Gilbert, currency strategist at GFT Forex in New Jersey, in a note.
"If Asia is as satisfied with the Spanish Budget Plan as the rest of the world, a run back up to resistance from last week at 1.0520 may be in order," he said, referring to the Australian dollar. The Aussie, widely seen as a gauge for investor risk appetite, steadied at $1.0434 on Friday.
Asian credit markets were firmer early on Friday, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by two basis points.
Barclays Capital analysts noted that despite bad news, the losses in Spanish assets over the past two months were limited.
"This supports our view that the backstops in place will likely be effective in curtailing tail risks," they said.
Ten-year Spanish bond yields dipped below 6 percent on Thursday after topping that level on Wednesday for the first time since the ECB unveiled the bond-buying plan on Sept. 6.
Spain faces a Moody's credit rating review this week and the release of a stress test of its banking sector on Friday which will reveal how much more money is needed to recapitalise its banks.
Ratings agency Egan-Jones on Thursday cut Spain's sovereign rating further into junk status, citing the country's faltering banks and struggling regional governments.
CHINA MOVE EYED
Reflecting choppy market sentiment, the CBOE Volatility index which measures volatility expected in the Standard & Poor's 500 index fell 11.7 percent on Thursday for its sharpest daily decline in three weeks, just a day after the index posted its biggest daily rise in 2-1/2 weeks.
Talk authorities would offer measures to prop up the wobbly Chinese stock markets lifted the Shanghai Composite Index up as much as 3 percent on Thursday, one day after the index hit its lowest point since February 2009.
Sentiment was also buoyed by China's central bank injecting a record amount of liquidity into the money markets this week to ease funding strains as China heads for a week-long holiday.
Following fresh monetary stimulus unveiled by the United States and Japan this month, markets have also retained expectations for China to cut interest rates to spur growth, as weakening demand in China has damaged global economies and weighed on investor sentiment.
Beijing approved billions of dollars worth of infrastructure projects this month.
But China's biggest listed steelmaker, Baoshan Iron & Steel Co, which has suspended output at a loss-making plant, expressed doubt that attempts to prop up the slowing economy would revive demand in the world's biggest market for the metal. A slump in iron ore prices had triggered a broad sell-off in riskier assets.
U.S. crude rose 0.4 percent to $92.23 a barrel and Brent also rose 0.4 percent to $112.43.