Asian stocks rebound on central bank stimulus hopes with Nikkei jumping 5.5%, STI up 1.4%

People walking past a market display in Tokyo on Jan 21.
People walking past a market display in Tokyo on Jan 21. PHOTO: EPA

WELLINGTON/SINGAPORE (BLOOMBERG, REUTERS) - Asian stocks rallied from a 3 1/2-year low on Friday (Jan 22), as the prospect of an expansion in central bank stimulus sparked a surge in Japanese shares and crude oil climbed toward US$30 a barrel. Safe-haven assets retreated.

The Nikkei share average jumped 5.5 per cent in afternoon trade, recouping most of its losses from the past two days after European Central Bank chief Mario Draghi indicated on Thursday that he may bolster economic support as soon as March. The yen headed for a weekly drop as the Nikkei newspaper reported on Friday that the Bank of Japan is "taking a serious look" at expanding its monetary easing measures. A higher yen and falling stock prices would also loom large at the central bank's next two-day policy meeting on Jan 28 and 29, the report said.

The MSCI Asia Pacific Index climbed 2.7 per cent as of 12:31 pm Tokyo time, reducing its third straight weekly decline to 2.2 per cent. The MSCI's All-Country World Index has lost 1.2 per cent since Monday, a slide that put the measure of global stocks on the brink of a bear market.

Hong Kong's Hang Seng Index rose 1.4 per cent. Australia's S&P/ASX 200 Index climbed 1 per cent while South Korea's Kospi index increased 1.7 per cent.

Singapore's Straits Times Index was up 1.42 per cent to 2,568.70 as of 1:41 pm.

Global monetary policy is once again in focus amid signs some of the world's key central banks may be prepared to act with markets rocked by uncertainty over China's slowdown and the impact of slumping oil prices. Diminished inflation expectations and a strengthening yen are seen as adding increasing pressure on the Bank of Japan to enlarge stimulus at its meeting next week. China will keep intervening in its equity market to "look after" investors and has no intention of further devaluing the yuan, Vice President Li Yuanchao said in an interview with Bloomberg News in Davos.

"The cavalry might be coming to the rescue in terms of the central banks starting to sound more dovish," Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors, which oversees about US$120 billion, said on Bloomberg TV. "There's a little bit of light at the end of the tunnel. We've probably seen the worst and by the end of the year things will be a lot brighter than they are now."

Standard & Poor's 500 Index futures climbed 0.3 per cent to 1,867.20 in Friday trading, following the US benchmark's 0.5 per cent rebound from a 21-month low.

"It's typical for central bank action - or the prospect of some - to act as a catalyst for improving sentiment and last night's price action bore that out," Cameron Bagrie, chief economist in Wellington at ANZ Bank New Zealand, said in a client note. "Climbs up the stairs invariably follow movements down the elevator as extreme pessimism corrects somewhat. However, problems are still numerous. If the post-global financial crisis era has taught us anything, it is that there is a limit to what central banks can, and should, do."

Oil extended its rebound toward US$30 a barrel, rising 0.8 per cent to US$29.76 a barrel. Prices are headed for a 1.2 per cent weekly gain, arresting the 20 per cent drop so far this year.

Gold trimmed its weekly advance as Asia stocks recovered and demand for haven assets eased. Bullion for immediate delivery fell 0.2 per cent to US$1,099.52 an ounce, trimming its 1 per cent gain for the week.