GLOBAL MARKETS-Asian shares rise on firm China, U.S. data, yen slips

Fri Jan 18, 2013 1:54am EST

* MSCI Asia ex-Japan adds 0.8 pct, Nikkei jumps 2.9 pct

* Chinese data confirms recovery on track

* Yen hits new lows vs dollar, euro on U.S. data, BOJ speculation

* European shares likely subdued

By Chikako Mogi

TOKYO, Jan 18 (Reuters) - Asian shares advanced on Friday as encouraging data from the United States and China boosted prospects for the global economy, while the yen hit new lows ahead of next week's Bank of Japan meeting.

Both the Tokyo and Hong Kong stock markets surged to multi-month highs on the upbeat sentiment.

China's economy grew 7.9 percent in the fourth quarter of 2012 from a year earlier, strengthening from 7.4 percent in the third quarter -- the lowest since the depths of the global financial crisis.

The bounce snapped seven straight quarters of slowing expansion, and augurs well for risk-on trade amid an improving outlook for the global economy. The positive news from China comes on top of strong U.S. labour and housing market reports, buoying sentiment for the world's two largest economies.

"It's kind of like a golden spot (for China) - stronger growth, but not strong enough to trigger a lot more inflationary concern. That's perfect for equity markets," said Dariusz Kowalczyk, Asia ex-Japan senior strategist at Credit Agricole CIB in Hong Kong.

The MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.8 percent, carrying positive momentum from the strong U.S. data on Thursday.

The pan-Asian index gained as much as 0.8 percent to a 17-1/2-month high and was set for a weekly gain of 0.7 percent.

Hong Kong shares hit 19-1/2-month highs and Shanghai shares were set for their first gain in three days.

"The (GDP) data reaffirmed views that China will not see a hard landing as feared at one point and that the economy is on a more solid footing than last year and resuming a sustainable growth level of 7 to 8 percent," said Tomomichi Akuta, senior energy researcher at Mitsubishi UFJ Research and Consulting in Tokyo.

Industrial commodities gained on a brightening growth outlook, pinning platinum and palladium near multi-month highs hit on Thursday, while oil prices erased earlier losses, with U.S. crude up 0.1 percent to $95.61 a barrel and Brent futures adding 0.2 percent to $111.27.

Other Chinese data released showed industrial output grew 10.3 percent in December from a year ago, above an expected 10.1 percent increase, and retail sales in December rose 15.2 percent on the year ago, also topping an estimated 14.9 percent rise.

Tokyo's benchmark Nikkei average surged 2.9 percent for its biggest daily gain in 22 months as the yen resumed its downtrend, improving earnings prospects for Japanese exporters. The Nikkei was set for a 10th straight week of gains, the longest since 1987.

European markets are seen subdued, with financial spread-betters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX would open flat to down as much as 0.1 percent. U.S. stock futures were barely moved, pointing to a quiet Wall Street start.

Robust equities boosted Asian credit markets, tightening the spread on the iTraxx Asia ex-Japan investment-grade index by 4 basis points.

YEN WEAKNESS RESUMES

The strong U.S. data and mounting expectations for more aggressive easing by the Bank of Japan (BOJ) next week lifted the dollar to its highest since June 2010 of 90.21 yen, and the euro to its peak since May 2011 of 120.73 yen.

Expectations that the new Japanese government will pursue massive fiscal spending and push for more aggressive BOJ easing to drive Japan out of years of deflation and economic slump have spurred heavy yen selling since November.

Sources told Reuters the BOJ will at its Jan. 21-22 meeting consider removing the 0.1 percent floor on short-term interest rates and commit to open-ended asset buying until the 2 percent inflation target is reached.

The actual outcome may disappoint some in the markets but the yen may not escape further selling given a growing view in the market that Prime Minister Shinzo Abe's government remains determined to rectify excessive yen strength over the years.

"I would not underestimate the government's intention. Any dip will likely be shallow as I believe there are still many who haven't caught up with (the yen selling)," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, who said 95 yen was possible by March while support looked firm around 88 yen.

Investor nervousness was evident in the options market, with dollar/yen one-month implied volatility hitting its highest since September 2011 around 12.12 percent.

Interest in buying dollar options have been growing, and dollar/yen risk reversals showed a bias for yen puts/dollar calls hovering near a two-month high.