April 1, 2009 / 4:38 AM / 11 years ago

Asian shares extend rally but caution setting in

HONG KONG (Reuters) - Asian stocks started the new quarter with more gains after an impressive performance in March on expectations the frail global economy is about to bottom out and hopes the financial system was on the mend.

However, the safe-haven yen also rose on concerns about the fate of General Motors Corp (GM.N) and Chrysler, in a possible sign that more bad news could spur investors to ditch riskier assets just as quickly as they piled in on March.

Oil prices dropped more than 2 percent, dragged down by an industry report showing a larger-than-expected rise in U.S. crude stocks, while gold prices held firm.

Leaders from the G20 group of the world’s biggest economies meet on Thursday with little hope they will find concrete solutions to the worst global economic crisis in decades.

Evidence of economic weakness abound. Data on Wednesday showed Japanese business confidence tumbled to a record low, while reports on Tuesday showed plunging U.S. home prices and consumer confidence holding at just above record lows.

Still, deep interest rate cuts by major central banks — with the European Central Bank expected to cut its benchmark again on Thursday — and stimulus measures are at least comforting stock markets in Asia, which enjoyed in March their best month in a decade.

“The market environment has turned fairly positive. Easier monetary policy worldwide have allowed more liquidity to flow into markets,” said Kwak Joong-bo, a market analyst at Hana Daetoo Securities in Seoul.

The MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS rose 0.7 percent as of 3:30 a.m. British time, building on gains of 14.6 percent in March.

Financial shares such as National Australia Bank (NAB.AX) and KB Financial Group (105560.KS) were among the leading gainers.

Although banks in the region did not hold as many of the junk investments that hurt some of their global rivals, their shares have suffered nonetheless on concerns about the broader financial system.

“People are feeling a lot more confident about banks,” said Chris Halls, a fund manager with Argo Investments Ltd in Australia.

South Korean auto makers such as Hyundai Motor (005380.KS) also surged on hopes they will gain market share at the expense of struggling U.S. rivals.

GM warned on Tuesday there was a rising chance it could file for bankruptcy by June, as Fiat SpA FIA.MI and Chrysler executives met in a race to complete a tie-up the U.S. government says Chrysler needs to survive.

U.S. stock futures had been hit during Asia trade on Wednesday after Bloomberg reported U.S. President Barack Obama had decided on a pre-packaged bankruptcy for GM. A senior administration official later called that report “inaccurate.

CAUTION REMAINS

The concerns over U.S. auto makers did not prevent Asian shares from extending their winning streak with markets in Japan .N225, South Korea .KS11 and Taiwan .TWII leading with gains of nearly 2 percent.

Currency investors were more cautious, sending the safe-haven yen higher.

The dollar index .DXY, a gauge of its performance against six major currencies, rose 0.3 percent to 85.773 .DXY, but off an earlier high of 85.940. But the dollar fell 0.4 percent from late New York trade to 98.60 yen after tumbling as low as 98.21 yen on trading platform EBS.

The New Zealand dollar fell more than 2 percent and its debt rallied strongly after the country’s central bank warned the outlook for the recession-hit economy remained weak and the bank would be keeping rates low for some time.

“Investors fear that RBNZ may adopt unconventional methods of easing monetary policy, if financial conditions continue to tighten,” said Bank of NZ currency strategist Danica Hampton.

The NZ dollar fell to a low of $0.5558, from $0.5700 before the statement. It was trading at $0.5576/80 at 0100 GMT.

U.S., British and Japanese central banks have turned to unconventional steps to pump funds into their economies, including outright buying of government and corporate debt.

It is not clear whether the European Central Bank will follow suit, though analysts do widely expect it to cut its main interest rate by 50 basis points to a record low of 1 percent at its policy meeting on Thursday.

The euro was down 0.5 percent to $1.3185.

In commodity markets, U.S. crude for May delivery slid $1.20 to $48.50 on a report from the American Petroleum Institute showing U.S. crude stocks rose by a greater-than-expected 3.3 million barrels in the week to March 27. <API/S>

Gold held firm at $920.35 an ounce from its New York’s notional close of $917.15 on Tuesday.

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