WELLINGTON, TOKYO (BLOOMBERG) - Asian stocks rose as concern about Deutsche Bank's finances eased after the lender was reported to be lining up a less-costly settlement with US regulators than investors feared. But Brexit fears weighed on the pound and oil retreated from a six-week high.
Financial shares drove gains on the MSCI Asia Pacific Index, which fell on Friday by the most in almost three weeks. Sterling slid to its weakest level in more than a month after British Prime Minister Theresa May said she'll start pulling the UK out of the European Union in the first quarter of 2017.
Markets in China, Malaysia and South Korea are shut for holidays on Monday.
Relief swept over global equity markets on Friday as Agence France-Presse reported that Deutsche Bank was nearing a US$5.4 billion settlement with the US Department of Justice, less than half an initial request, that stemmed from a probe tied to residential mortgage-backed securities. The financial woes of Germany's biggest lender as it struggles with tougher capital standards and soaring legal bills adds to a list of market risks that includes Brexit and tightening US monetary policy.
"Investors were nervous about the uncertainty surrounding Deutsche Bank and the potential spillover effect on other European banks, but the mood is to take a wait-and-see approach for now," said Yutaka Miura, senior technical analyst at Mizuho Securities Co. in Tokyo.
Japan's quarterly Tankan index of sentiment among large manufacturers came in slightly weaker than economists had expected, a report showed on Monday. China's official manufacturing purchasing managers' index steadied at the highest level in almost two years while services picked up, suggesting that the economy's stabilization continued last month, data showed over the weekend. South Korea reported a bigger-than-expected drop in exports for September, ahead of the release of manufacturing gauges for the US and the euro area.
The MSCI Asia Pacific Index rose 0.5 per cent as of 10:10 am Tokyo time, after falling 1.1 per cent in the last session. Financial shares accounted for about a third of the move, buoyed by Deutsche Bank's 6.4 per cent surge in Germany on Friday. The stock sank to a record low last week and is still down more than 50 per cent from where it was a year ago.
"Concern about Deutsche Bank is far from over," said Nicholas Teo, a strategist at KGI Fraser Securities in Singapore, said by phone. "Systemic risk is a real possibility with the derivatives exposure that plagues Deutsche."
Benchmarks in Australia, where some states have holidays today, and Japan gained 0.9 per cent. Futures on the S&P 500 Index were little changed, after the underlying measure rallied 0.8 per cent on Friday. Contracts on Hong Kong's Hang Seng and Hang Seng China Enterprises indexes gained more than 1 percent in most recent trading.
The pound dropped as much as 0.5 per cent versus the dollar and lost 0.3 per cent against the euro after May told delegates at her Conservative Party's annual conference that she'll invoke Article 50 of the EU's Lisbon Treaty - the formal trigger for two-years of exit talks - by the end of March. Sterling tumbled the most on record to a more than 30-year low in the wake of the vote in favor of Brexit.
"We're back to the Brexit risks," said Vishnu Varathan, a senior economist at Mizuho Bank in Singapore. "The sterling has taken a bit of knock first. If the concerns become wider concerns about financial market contagion we will find that the slight softening that we've seen in the dollar trend will be shaken off."
The yen strengthened 0.1 per cent, rising for the first time in a week.
China's yuan was little changed at 6.6766 per dollar in offshore trading. The currency joined the International Monetary Fund's Special Drawing Rights - putting it alongside the dollar, euro, pound and the yen - on Saturday, giving the country's efforts to boost the yuan's international status and usage a boost.
West Texas Intermediate crude fell 0.8 per cent to US$47.85 a barrel after rising 8 per cent over the previous three sessions as Opec members forged a preliminary agreement to reduce output. The number of rigs targeting crude in the US rose for a fifth consecutive week, Baker Hughes Inc. said Friday. Iran wants to increase exports to 2.35 million barrels a day in the coming months, state news agency IRNA reported.
Gold advanced 0.2 per cent after sliding 1.6 per cent last week, the most since July.