GLOBAL MARKETS-Indian stocks lead Asian markets higher, rupee up

Thu Sep 5, 2013 2:33am EDT

* Asian stocks hit 3-week highs, led by rally in Indian shares

* Upbeat U.S. data also cheers, but Fed tapering worries persist

* BOJ, as expected, maintains massive stimulus programme

* European stocks seen opening up, ECB rate review in focus

By Ian Chua

SYDNEY, Sept 5 (Reuters) - Asian stocks rose to three-week highs on Thursday as Indian shares and the rupee rallied a day after the country's new central bank chief unveiled measures to support the currency and the banking sector.

But worries the U.S. Federal Reserve will soon scale back stimulus kept markets in check. MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.6 percent, having earlier hit a high last seen on Aug. 19.

Financial spreadbetters expect modest opening gains for key European markets, mirroring Asia's performance.

India's benchmark BSE index put on 2.1 percent, South Korea's KOSPI rose 1.0 percent, while Thai stocks climbed 1.6 percent.

Tokyo's Nikkei closed a touch firmer, having lost a bit of steam after hitting a one-month high. Still, it is up an enviable 5 percent so far this week.

The moves followed a second day of gains on Wall Street spurred by another set of upbeat U.S. data, though the figures have also added to the chance of the Fed tapering its stimulus programme.

"Strong car sales in the U.S. again lifted market confidence in the economy, and lifted expectations that the U.S. Federal Reserve will start cutting back its stimulus this month," said Isao Kubo, an equity strategist at Nissay Asset Management. "There is a sense of caution in the market."

Markets appeared to have cast aside worries about Syria for the moment, even as a possible U.S. military strike moved one step closer after a Senate committee voted in favour of action, clearing the way for a vote in the full Senate, likely next week.

CENTRAL BANK FOCUS

Former IMF chief economist Raghuram Rajan took the helm at the Reserve Bank of India in grand style on Wednesday, announcing an array of measures to liberalise financial markets and the banking sector.

The rupee rose to as high as 65.53 per U.S. dollar, pulling well away from a record low around 68.85 set last week.

Radhika Rao, an economist at DBS in Singapore, said the path of action plotted by the new governor was a welcome move.

"Still, the external drivers of the rupee weakness will continue to dictate the momentum, along with the urgent need to address domestic structural pitfalls - fiscal and current account deficits, along with reviving investment activity," she said in an email to clients.

As expected, the Bank of Japan maintained the massive monetary stimulus launched in April and revised up its outlook for the economy following a two-day review. Governor Haruhiko Kuroda will give a media briefing later in the day.

The European Central Bank takes centre stage next, although it is widely seen keeping rates low for an "extended period".

U.S. data on Wednesday showed auto sales raced past expectations in August, ahead of the closely-watched payrolls data on Friday, extending a string of upbeat U.S. data that has reinforced expectations the Fed will soon start to pull back support.

Such expectations have underpinned the U.S. dollar, which remained near a six-week high against a basket of major currencies.

The euro briefly popped above $1.3200, before slipping back 0.3 percent to $1.3173. It remained within spitting distance of a six-week low of $1.3138 plumbed earlier this week.

Against the yen, the dollar reached a one-month high of 99.99, while the euro retreated slightly from a two-week peak around 131.81 yen reached overnight.

Among commodities, Brent crude oil added 12 cents to $115.05 a barrel, while copper futures were flat at $7,126.00 a tonne.

India, along with many emerging markets, has also been hit hard by an outflow of funds as international investors positioned for a world with less central bank support.

The IMF, in a note prepared for the Group of 20 meeting in St. Petersburg, warned that emerging countries were particularly vulnerable to a tightening of U.S. monetary policy.

It urged strengthened global action to revitalise growth and better manage risks, adding some downside risks have become more prominent.