Asian Stocks Rise on Fed Tapering; China Shares Retreat

Asian stocks rose after the Federal Reserve expressed enough confidence in the U.S. labor market to taper asset purchases while promising to hold interest rates close to zero. Shares in China and Hong Kong fell on concern higher funding costs will hurt growth.

Fast Retailing Co., Asia’s biggest apparel chain, climbed 4.5 percent, pushing Japan’s Nikkei 225 Stock Average to its highest close since 2007 after the yen touched a five-year low to the dollar overnight. Fanuc Corp., a maker of factory robotics, rose 4.1 percent to a record in Tokyo. Caltex Australia Ltd. surged 13 percent as the petroleum refiner said profit may climb to A$340 million ($301 million). Hang Lung Properties Ltd., a Hong Kong developer that invests in mainland malls, fell 4.6 percent.

The MSCI Asia Pacific Index advanced 0.1 percent to 138.45, with more than five stocks rising for every four that fell. The Fed said it will cut monthly bond purchases to $75 billion from $85 billion, a first step in unwinding unprecedented stimulus put in place to help the economy recover from the worst recession since the 1930s.

“It’s a win-win for markets,” Shane Oliver, who helps oversee $131 billion as head of investment strategy at AMP Capital Investors Ltd. in Sydney, said by phone. “They are more optimistic on the employment rate and the economy while still keeping loose monetary policy in place with low rates to support the economy. We’re happy to stay overweight equities and if anything buy a bit more.”

Regional Gauges

Japan’s Topix index rose 1 percent. The Nikkei 225 climbed 1.7 percent, the highest since Dec. 12, 2007, as the yen touched the lowest intraday level since October 2008 overnight. It traded at 104.01 per dollar as of 3:07 p.m. in Tokyo. Fast Retailing soared 4.5 percent to 40,750 yen. Fanuc gained 4.1 percent to 18,680 yen.

Australia’s S&P/ASX 200 Index jumped 2.1 percent. Volume was 26 percent higher than the 30-day average as equity index and single stock options contracts expired. Caltex gained 13 percent to A$19.12.

New Zealand’s NZX 50 Index added 0.7 percent after economic growth accelerated to the fastest in almost four years in the third quarter. South Korea’s Kospi index added less than 0.1 percent.

Hong Kong’s Hang Seng Index slid fell 1.1 percent, while the Hang Seng China Enterprises Index of mainland shares traded in the city lost 1.7 percent. The Shanghai Composite Index retreated 1 percent. China’s interest-rate swaps jumped the most since July, touching a record, as the central bank refrained from injecting cash into the financial system. Hang Lung Properties slid 4.6 percent to HK$24.00 in Hong Kong.

Taiwan’s Taiex index added 0.7 percent, while Singapore’s Straits Times Index added 0.3 percent.

Rate Outlook

The Fed said its benchmark interest rate is likely to stay low “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below” the Fed’s 2 percent goal.

“Reflecting cumulative progress and an improved outlook for the job market, the committee decided today to modestly reduce the monthly pace at which it is adding to the longer-term securities on its balance sheet,” Fed Chairman Ben S. Bernanke told reporters in Washington yesterday after concluding the two-day meeting where the decision was made to reduce stimulus.

The U.S. Senate yesterday cleared and sent to President Barack Obama a $1.01 trillion budget deal, lowering the U.S. deficit over 10 years and easing $63 billion in automatic spending cuts. The plan keeps in place about half of the reductions known as sequestration for next year, and about three-quarters of the planned cuts for 2015.

Relative Value

The MSCI Asia Pacific Index gained 7 percent this year as central-bank stimulus shored up global economic growth. The gauge trades at 13.7 times estimated earnings, compared with 16.3 for the Standard & Poor’s 500 Index and 15 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

The Topix rose 47 percent this year, the most among 24 major developed markets tracked by Bloomberg, amid unprecedented stimulus by the Bank of Japan in support of Prime Minister Shinzo Abe’s efforts to end 15 years of deflation.

The Bank of Japan began a two-day policy meeting today. Central-bank officials see significant scope to increase government-bond purchases if needed to achieve their 2 percent inflation target, according to people familiar with the discussions.

Futures on the S&P 500 Index dropped less than 0.1 percent today after the equities gauge surged 1.7 percent to a record yesterday. The Dow Jones Industrial Average soared 1.8 percent, also rising to an all-time high. The cost of protecting against equity losses as measured by the Chicago Board Options Exchange Volatility Index slid 15 percent, the biggest drop in two months.

Fu Shou Yuan International Group Ltd. jumped 45 percent to HK$4.82 in the graveyard builder’s Hong Kong trading debut.

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