Asian shares edge higher on global equity gains

TOKYO (REUTERS) - Asian shares edged higher to extend gains for a third day on Friday, tracking an overnight rise in global equities on easing fears of an early end to US monetary stimulus, but caution remained about the recently volatile Chinese markets.

Global equity markets and bonds extended gains on Thursday, recovering further from the recent acute selloff, after three US Federal Reserve officials sought to downplay market fears that the central bank would soon ease its unprecedented bond-buying stimulus programme known as "quantitative easing", or QE.

Investors are seeking to balance positive and negative aspects of US recovery, with a steady growth trend in the world's largest economy reducing downside risks to global economies, but allowing the Fed to proceed with its plan. QE, aimed at supporting growth, has underpinned broad risk asset markets with abundant cheap credit.

"Markets have reached the stage where negative US economic news is interpreted as risk positive, and vice versa. This supports our thesis that US economic strength will lead to a wave of dollar repatriation, undermining economies reliant on a long period of cheap dollar funding," Morgan Stanley said in a research note.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 per cent after rising 1.6 per cent for a second daily gains on Thursday, which took the index away from an 11-month low touched earlier in the week and wipe away this week's steep losses.

Australian shares were steady, while South Korean shares opened up 0.5 per cent. Japan's Nikkei stock average opened up 1.3 per cent after soaring 3 per cent on Thursday for its biggest one-day percentage gain in 13 sessions.

An improving economic outlook and rising yields accompanying the Fed's announcement last week of its plan to start scaling back its aggressive monetary stimulus later this year have boosted the appeal of the US dollar. The greenback has also benefited from its safe-haven appeal as China's resolve to crack down on risky informal lending resulted in tight funding conditions, spiking money market rates to record highs and triggering worries that a crisis in China's banking system would undermine growth in the world's second-largest economy.

Chinese money market rates moderated for a fifth day on Thursday, and stocks recovered some of their recent hefty losses after the central bank earlier this week moved to quell concerns, saying it had provided funds to some institutions and will do so again if needed. But confidence remained fragile as Beijing remains committed to cleaning up "shadow banking".

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