Asia stocks at 2-month high

By Kevin Plumberg

HONG KONG (Reuters) - Asian stocks rose on Wednesday, extending their recent rally into an eighth straight day, inspired by hopes massive U.S. government spending and tax cuts will continue to support the dollar and stimulate demand for exports.

The string of gains was the longest since October 2007, supported by a rebound on Wall Street and a steady improvement in Asian investment grade credit spreads as policymakers slash interest rates and pour capital into struggling industries to mitigate damage from the financial crisis.

Meanwhile, the U.S. dollar was heading for a fourth day of gains against the euro, on expectations U.S. President-elect Barack Obama will soon unveil a package of spending and tax cuts worth around $775 billion.

"U.S. stocks, hopes for Obama, and a reversal of the broad dollar-selling positions made in December will support the dollar, possibly until Obama officially takes office later this month," said Kengo Suzuki, a currency strategist at Shinko Securities in Tokyo.

"But the state of the U.S. economy is so miserable. That will prompt market players sooner or later to question the wisdom of extended dollar buying," Suzuki said.

Federal Reserve officials believed the U.S. economy could weaken substantially further even with benchmark rates between zero and 0.25 percent, meeting minutes showed on Tuesday, feeding expectations of big borrowing needs at the U.S. Treasury and weighing on long-dated government debt prices.

The MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS was up 1.45 percent to the highest since early November, on track for an eighth consecutive session of gains.

The 4.1 percent rise in the index so far this week has exceeded the 1.5 percent increase on the all-country world index.