HONG KONG - ASIAN stocks inched higher for a seventh day on Tuesday on hopes for a global economic recovery later in 2009, but the yen's gains against high-yielding currencies suggested scope for optimism was limited.

European stock futures pointed to a higher open, as investors continued to move money stashed in low-risk government bonds into equities in search of higher returns.

Low interest rates around the world and massive government economic stimulus plans have revived some investors' willingness to take on risk again after one of the worst years on record for equities in 2008.

Long-dated US Treasuries were under pressure after the 30-year yield surged overnight, rising above 3 per cent for the first time since mid December, as the market demanded more incentive to lend to the increasingly indebted US government.

Expectations that US President-elect Barack Obama will offer US$310 billion (S$457.6 billion) in tax cuts as part of a US$775 billion plan to support the economy have fed into the tentative recovery in global equity markets. Germany also was reportedly considering tax cuts to revive Europe's largest economy.

Still, the global economy showed few signs of near-term improvement. US auto sales posted their weakest year since 1992 and total job losses were expected to be the highest in the post-war period. In Asia, Toyota Motor Corp said it would close its factories in Japan for 11 days.

Wary investors are also continuing to keep substantial space in their portfolios dedicated to cash, fearing early 2009 gains will be short-lived. Total net assets in US money market funds were US$3.83 trillion last week, up US$430 million in the last three months, according to the Investment Company Institute, an industry trade group.

'The risk that the financial system will fall off a cliff seems to be fading, but the global economic recession has just barely started,' Mr Dong Tao, chief regional economist with Credit Suisse in Hong Kong, said at a news briefing.

'In the first half of 2009, the depth of this economic contraction will surprise many people,' he said.

The MSCI index of Asia-Pacific stocks outside Japan edged up for a seventh straight day, up 0.45 per cent to a two-month high, shrugging off weakness on Wall Street where investors took profits on last week's run-up.

The index has rallied 34 per cent since hitting a five-year low in November, though trading volumes may remain thin in January because of public holidays throughout Asia.

Japan's Nikkei average climbed 0.4 per cent, led by a 5 per cent jump in major exporter Canon Inc.

Caution on dollar
Caution about details of the new US stimulus plan and its timing saw the US dollar slip against the yen, after hitting a near one-month high the previous day on expectations that the plan would help revive the faltering economy.

Democrats had hoped to have the fiscal rescue package ready for Mr Obama to sign into law when he takes office on Jan 20, but they now admit it will take at least a month longer.

'There are expectations for the new administration's economic measures such as possible big tax cuts, and this may underpin the dollar in the near term,' said Mr Yuji Saito, head of the FX sales department at Societe Generale in Tokyo.

'But the economic package has not yet been endorsed, so investors are cautious about buying the dollar aggressively,' he said.

The yen, which has served as a refuge for investors from wild financial market volatility, strengthened broadly.

The dollar was down around 0.4 per cent to 93.06 yen while the euro fell 1 per cent to 126.00 yen Against the yen, the Australian dollar was down around 0.9 per cent to 66.41 yen after hitting a two-month high on Monday.

Though the yen was supported, other popular havens like Japanese government bonds and US Treasuries were under pressure as the attraction of cheap stocks sucked in investors.

The real fireworks have been in long-maturity US debt.

The 30-year yield has jumped 50 basis points in the last week to 3.04 per cent, and the 10-year yield more than 40 basis points to 2.49 per cent as institutional investors sour on the idea of the Federal Reserve buying Treasuries to keep rates low.

The benchmark 10-year Japanese government bond yield rose 5 basis points to 1.25 per cent ahead of a auction of 10-year bonds on Thursday. A week ago the 10-year yield hit a five-year low of 1.155 per cent.

Oil prices slipped after jumping 5 per cent the previous day as the Israeli-Palestinian conflict and a dispute between Russia and Ukraine over natural gas helped lift prices.

Israel's violent campaign to stop its towns from being showered with rockets showed no signs of ending though, as the country's troops backed by air strikes fought to seize ground from Hamas militants deep inside the Gaza Strip.

US light crude for February delivery was trading at US$48 a barrel down 1.7 per cent after plumbing four-year lows around US$32 last month. -- REUTERS

TOKYO
Japanese share prices closed up 0.42 per cent on Tuesday as a weaker yen lifted exporters, helping the market to overcome a negative lead overnight from Wall Street.

The benchmark Nikkei-225 index gained 37.72 points to 9,080.84, the highest close since Nov 10. The broader Topix index of all first-section shares gained 0.29 points, or 0.03 per cent, to 876.20.

KUALA LUMPUR
Malaysian shares rose 0.2 per cent on Tuesday, as buying momentum from local funds helped to reverse early losses, dealers said.

The Kuala Lumpur Composite Index (KLCI) rose 1.57 points to close at 922.23. Decliners outnumbered advancing stocks 292 to 258.

The benchmark index was tipped to trade in a range of 913-930 on Wednesday on expectations of sustained buying interest from local funds, dealers told Dow Jones Newswires.

'Funds are continuing to accumulate oversold shares as they build their portfolios,' one dealer said.

'Local government-led funds such as the Employees Provident Fund and ValueCap are among the main participants.'

Among leading stocks, Bumiputra-Commerce was up 2.4 per cent at 6.50 ringgit, Maybank rose 2.8 to 5.55 ringgit and Genting lost 3.0 per cent to 3.84 ringgit.

SHANGHAI
Chinese shares closed up three per cent on Tuesday led by banking stocks as Shanghai Pudong Development Bank posted strong earnings for the past year, dealers said.

The benchmark Shanghai Composite Index, which covers A and B shares, closed up 56.43 points at 1,937.15 on turnover of 69.0 billion yuan (S$14.89 billion).

The Shanghai A-share index added 59.24 points, or three per cent, to 2,033.95 on turnover of 68.7 billion yuan, while the Shenzhen A-share index rose 16.01 points, or 2.67 per cent, to 616.24 on turnover of 36.0 billion yuan.

HONG KONG
Hong Kong share prices closed 0.4 per cent lower on Tuesday, as investors locked in profits on Chinese telecom firms on hopes that Beijing would soon issue 3G licences, dealers said.

The benchmark Hang Seng Index closed down 53.80 points at 15,509.51.

Turnover was HK$53.92 billion (S$10.21 billion).

But the loss was trimmed by gains on local developers after government statistics showed that home sales in December had significantly improved from previous months. -- BERNAMA, AFP, REUTERS