Asian shares and bonds rally, US dollar off as Yellen strikes cautious stance; STI up 1.4%

A pedestrian walking in front of an electric stock board in Tokyo on March 17.
A pedestrian walking in front of an electric stock board in Tokyo on March 17.PHOTO: AFP

SYDNEY (REUTERS) - Asian shares gained on Wednesday (March 30) as markets scaled back expectations for how fast and far US interest rates might rise this year, bruising the US dollar and boosting sovereign bonds.

MSCI's broadest index of Asia-Pacific shares outside Japan reversed four sessions of losses to jump 1.3 per cent. South Korea hit its highest for the year so far, while Shanghai bounced 1.4 per cent. Japan's Nikkei was the only loser as a rise in the yen against the dollar nudged the index down 0.3 per cent.

Singapore's Straits Times Index was up 1.43 per cent at 2,859.37 as of 11: 31am.

The sea change came after Federal Reserve Chair Janet Yellen emphasised global dangers to growth and inflation, and thus the need to proceed "cautiously" on tightening policy.

"Her comments stand somewhat in contrast to recent remarks by other FOMC members and are more clear in respect to downside risk factors," said Michael Gapen, chief US economist at Barclays. "Hence, we see the comments as an effort to exert control over the message and, in doing so, tilt expectations for policy rate hikes in a decidedly dovish direction."

Fed fund futures jumped as investors priced out any a chance of a hike in April and only a slim probability of a move in June. The December contract implies a rate of just 57 basis points compared to the current 37 basis points.

Debt markets rallied hard in response with yields on 10-year US paper dropping 7 basis points to one-month low of 1.80 per cent.

On Wall Street, technology shares led gains in major indexes and both the S&P 500 and Dow closed at their highs for 2016. The Dow rose 0.56 per cent, while the S&P 500 gained 0.88 per cent and the Nasdaq 1.67 per cent.

Dollar bulls were not so pleased and the US. currency fell across the board. The dollar index was down at 95.108 early in Asia having suffered its biggest one-day fall in nearly two weeks.

The greenback dipped to 112.51 yen and away from a two-week high of 113.80. It also lost ground on the euro to US$1.1297, nearing the March peak of US$1.1342.

Commodity currencies gained ground, with the Australian dollar back above 76 US cents and not far off a recent 8-1/2 month peak of 76.81 US cents.

The drop in the US dollar helped oil prices regain a little ground, as did a forecast that US stockpiles may have grown by less than first thought.

US crude added 39 cents to US$38.67 a barrel, after falling around 3 percent on Tuesday. Brent rose 31 cents to US$39.45.

Gold was up at US$1,240 an ounce, after rising almost 2 per cent overnight.