Asia shares extend rally, pound bewildered by politics

   Sentiment has been soothed by a bounce in Chinese shares which saw Shanghai blue chips climb 2.8 per cent on Monday for the biggest daily jump since August 2016.
Sentiment has been soothed by a bounce in Chinese shares which saw Shanghai blue chips climb 2.8 per cent on Monday for the biggest daily jump since August 2016.PHOTO: REUTERS

SYDNEY (REUTERS) - Asian shares sought to rally for a third session on Tuesday (July 10) as hopes for upbeat corporate earnings buoyed Wall Street, while several high-profile resignations from Britain's government kept sterling on the defensive.

MSCI's broadest index of Asia-Pacific shares outside Japan put on 0.2 per cent in early trade, adding to a 1.3 per cent rise on Monday.

Japan's Nikkei climbed 0.8 per cent and South Korea 0.6 per cent, while E-mini futures for the S&P 500 firmed 0.1 per cent.

Sentiment has been soothed by a bounce in Chinese shares which saw Shanghai blue chips climb 2.8 per cent on Monday for the biggest daily jump since August 2016.

Both the Dow and S&P 500 boasted their biggest gains in more than a month overnight, as bank shares jumped ahead of earnings reports later this week. The S&P banks index posted its sharpest rise since March 26.

The Dow rose 1.31 per cent, while the S&P 500 gained 0.88 per cent and the Nasdaq 0.88 per cent.

The story in currency markets was all about political capers in London.

Prime Minister Theresa May's foreign minister and Brexit negotiator quit on Monday in protest at her plans to keep close trade ties with the European Union after Britain leaves the bloc, stirring rebellion in her party's ranks.

Foreign Secretary Boris Johnson stepped down just hours after Brexit minister David Davis's resignation, emboldening some in her Conservative Party to mull a plot to unseat her.

The uncertainty saw sterling sink as deep as US$1.3189 at one stage before bouncing somewhat to US$1.3254. Markets still think it likely the Bank of England will hike rates in August, but a full-blown political crisis could change that.

"Heightened political risk at home coupled with Brexit uncertainty may prompt the BOE to repeatedly delay monetary policy normalization in 2018," said Lukman Otunuga, a research analyst at broker FXTM.

"If expectations continue to diminish over the central bank raising UK interest rates, sterling is at risk of experiencing heavy losses down the road."

The pound's pain was a boon for the US dollar which rallied broadly on expectations the Federal Reserve will keep raising its interest rates.

Against a basket of currencies, the dollar bounced to 94.038 from a low of 93.713. The dollar also edged up to 110.93 yen, from a trough of 110.30, but faces stiff resistance atop 111.00.

The euro was back at US$1.1755, having run into profit-taking at a three-week peak of US$1.1790 overnight.

In commodity markets, oil gained on supply disruptions in Canada and Libya and ahead of looming sanctions on Iran.

US crude added 6 cents to US$73.81, while Brent rose 12 cents to US$78.19 a barrel.

Spot gold was a fraction firmer at US$1,259.02.