Asian stocks edged up for a seventh day on Tuesday, boosted by hopes for a global economic recovery later in 2009, though the rising yen and falling high-yielding currencies suggested such optimism was limited.
Investors continued to move money stashed in government bonds to equities as their willingness to take risks recovered with low interest rates around the world and governments essentially writing blank checks for plans to revive sagging economies.
Long-dated U.S. Treasuries were under pressure after the 30-year yield surged overnight, rising above 3 percent for the first time since mid December, as the market demanded more incentive to lend to the increasingly indebted U.S. government.
Expectations that U.S. President-elect Barack Obama will offer $310 billion in tax cuts as part of a $775 billion plan to support the economy has fed into a recovery in investors' willingness to take risks. Germany also was reportedly considering tax cuts to revive Europe's largest economy.
Still, the global economy showed few signs of near-term improvement. U.S. auto sales posted their weakest year since 1992 and total job losses were expected to be the highest in the post-war period.
"Indicators of market stress continue to improve whilst bond yields continue to back up in line with the improvement in risk appetite over recent weeks and consistent with an asset class rotation from bonds to equities," said Calyon strategists in a note.
"We remain cautious about the potential for this to continue and suspect that the flow of money back into riskier assets that has gained momentum over recent weeks will stall soon."
The MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS rose for a seventh straight day, up 1.1 percent to a two-month high and shrugging off weakness on Wall Street where investors took profits on last week's run-up.
The index has rallied 34 percent since hitting a five-year low in November, though trading volumes may remain thin in January because of public holidays throughout Asia.
Japan's Nikkei average .N225 climbed 1.1 percent, led by Fast Retailing Co Ltd (9983.T: Quote, Profile, Research, Stock Buzz), which saw solid same-store sales at its clothing chain as a result of aggressive discounts.
South Korean stocks .KS11 rose 2 percent. Technology companies were among the biggest boosts to the index, with Samsung Electronics (005930.KS: Quote, Profile, Research, Stock Buzz) up 4.8 percent.
CAUTIOUS DOLLAR BUYING
The U.S. dollar slipped against the yen, after hitting a near one-month high the previous day on expectations that a planned U.S. stimulus package would help revive the faltering economy.
"There are expectations for the new administration's economic measures such as possible big tax cuts, and this may underpin the dollar in the near term," said Yuji Saito, head of the FX sales department at Societe Generale.
"But the economic package has not yet been endorsed, so investors are cautious about buying the dollar aggressively," he said.
The yen, which has served as a refuge for investors from wild financial market volatility, strengthened broadly.
The dollar was down 0.3 percent to 93.16 yen, while the euro fell 0.5 percent to 126.65 yen.
The euro was off 0.3 against the dollar at $1.3603, having fallen 11 cents from a 3-month high reached in December.
Though the yen was supported, other popular havens like Japanese government bonds and U.S. Treasuries were under pressure as the attraction of cheap stocks sucked in investors.
The real fireworks have been in long-maturity U.S. debt. The 30-year yield has jumped 50 basis points in the last week to 3.03 percent, and the 10-year yield 43 basis points to 2.49 percent as institutional investors sour on the idea of the Federal Reserve buying late-maturity Treasuries to keep rates low.
The benchmark 10-year Japanese government bond yield rose 4.5 basis points to 1.245 percent ahead of a auction of 10-year bonds on Thursday. A week ago the 10-year yield hit a five-year low of 1.155 percent.
Oil prices were steady after settling more than 5 percent higher the previous day as the Israeli-Palestinian conflict and a dispute between Russia and Ukraine over natural gas helped lift prices.
Israel's violent campaign to stop its towns from being showered with rockets showed no signs of ending though, as the country's troops backed by air strikes fought to seize ground from Hamas militants deep inside the Gaza Strip.
U.S. light crude for February delivery was trading at $48.68 a barrel after plumbing four-year lows around $32 last month.
