* Markets wager on policy stimulus as economic news
* German GDP -0.2 pct, France reports 2nd quarter of zero
* Bond prices rally globally, German yields turn negative
* Sterling slugged as BoE changes tack on rates
By Wayne Cole
SYDNEY, Aug 14 Asian shares pushed higher on
Thursday after a flood of soft economic data led investors to
wager on a ceaseless fountain of stimulus from major central
banks, sending bond yields tumbling across the globe.
An economic contraction in Japan, a shock fall in Chinese
loans, a surprisingly dovish turn by the Bank of England and a
sluggish reading on U.S. retail sales all combined to make any
tightening in policy seem a very distant prospect.
Indeed, investors suspect further action will be needed from
the European Central Bank after data showed the German economy
shrank by 0.2 percent last quarter, while France failed to grow
at all for a second straight quarter.
Yields on Germany's two-year debt actually went
negative, meaning investors were paying for the privilege of
lending Berlin money.
Barclays forex strategist Aroop Chatterje said
risk-correlated assets had responded positively to the weak data
in the U.S., China, the euro area and Japan, but noted:
"Euro area inflation remains subdued, which could put
pressure on the ECB.
"China's growth recovery remains fragile. More forceful
policy easing such as interest rate cuts is likely needed for
the government to achieve its growth target."
The Bank of Korea on Thursday cut its rates by a quarter
point to 2.25 percent, the lowest since early November 2010.
The shift came after new Finance Minister Choi Kyung-hwan
last month launched a series of stimulus measures to prop up
The thought of endless largesse helped take the sting out of
the disappointing economic news and underpinned equities.
Tokyo's Topix rose 0.66 percent, encouraged in part
by hopes for future demand from state pension funds. MSCI's
broadest index of Asia-Pacific shares outside Japan was up 0.24
The Australian market added 0.6 percent, led by a
2.2 percent gain for local telecoms giant Telstra after
its earnings beat forecasts and it announced a share buyback.
In Europe, financial spreadbetters expected a steady start
from the FTSE 100, DAX and CAC 40.
On Wall Street the Dow had ended Wednesday 0.55
percent firmer, while the S&P 500 added 0.67 percent and
the Nasdaq 1.02 percent.
Brazil was one of the few markets to lose ground as news
that presidential candidate Eduardo Campos was killed in a plane
crash knocked the Bovespa index down 1.5 percent.
NO HIKES HERE
Bond investors were also enticed by the outlook for easy
money as subdued U.S. retail sales led markets to again push
back the day when the Federal Reserve might first raise rates.
Fed fund futures for June next year <0#FF:> closed at their
highest in over two months at 99.75, implying a rate of just
Two-year U.S. Treasury yields dived to their lowest close in
nine weeks at 0.4159 percent, rallying from a top of
0.59 percent in just 10 sessions.
Across the Atlantic, the Bank of England caused a major
surprise by slashing its forecast for wage growth and saying
higher rates hinged largely on an improved outlook for pay.
On Thursday, a member of the BoE's policy committee, David
Miles, said the bank would not be pushed into raising interest
rates sharply because the outlook for inflation was subdued.
With traders abandoning bets for a near-term hike, yields on
two-year gilts plunged 10 basis points to 0.719
percent, the biggest daily fall since late June 2013.
The pound dropped to its lowest in four months around
$1.6680. It also plumbed a near seven-week low at 80.20
pence per euro and slid to 170.79 yen.
The setback for sterling helped the dollar index firm
to 81.656. The euro continued to defy gravity at $1.3351,
even as France's Finance Minister Michel Sapin urged the ECB to
do more to combat deflationary risks and make the currency more
In commodity markets, worries about Chinese demand kept
copper down at $6,886 a tonne, after touching a seven-week
trough under $6,874.
Spot gold, in contrast, found support from the outlook for
loose monetary policy and edged up to $1,313.54 an ounce.
Prices for Brent crude oil were off 53 cents at
$103.75, after hitting a 13-month low of $102.37 a barrel. U.S.
crude was down 24 cents at $97.35.
(Editing by Shri Navaratnam and Eric Meijer)