Most Asian markets advanced Tuesday to cheer benign inflation data from China and a solid start to the U.S. earnings season, while Japanese stocks let early gains slip by to snap a four-day winning streak as investors took profits in banks.
Japan’s Nikkei Stock Average began the day on a positive note as the U.S. dollar edged closer to the key 100-yen level. But after rising as high as 13,331.39 — the benchmark’s best level since August 2008 — it came under profit-taking pressure in afternoon trade and ended marginally lower at 13,192.35.
“Strong trending moves in Japan’s stock market and currency have brought these markets right into focus as a sentiment driver for regional markets,” said CMC Markets chief market analyst Ric Spooner.
However, “the recent strong market moves have increased the potential for sharp sell-offs on disappointing news,” Spooner said.
Elsewhere in the region, Australia’s S&P/ASX 200 rallied 1.5% and South Korea’s Kospi erased early losses to inch up 0.1%, while Taiwan’s Taiex slipped 0.3% at the end of a choppy trading session.
Meanwhile, the Hang Seng Index advanced 0.8% in afternoon trade, and the Shanghai Composite ended 0.6% higher, with both benchmarks extending early gains after official data showing March consumer prices in China rose at a less-than-expected rate of 2.1% from the year-ago month.
The increase was markedly lower than the 3.2% inflation recorded in February, and also milder than the 2.4% price increase anticipated by economists surveyed by Dow Jones Newswires. Wholesale prices dropped 1.9% in March, roughly matching expectations.
Barclays economists led by Jian Chang wrote to clients that the drop in inflation, due to an easing in volatile food prices, didn’t change their views on China’s monetary policy.
“Our baseline view of a benign growth and inflation mix suggests that the People’s Bank of China will maintain a neutral monetary policy stance in 2013, with flat benchmark interest rates. However, we continue to expect the PBOC to keep a bias toward tightening liquidity from its peak during November 2012-January 2013 to guide inflation expectations,” they added.
Tokyo, Sydney advance
Several Japanese banks retreated on profit-taking after hefty recent advances, to erase broad market gains.
Shares of Mitsubishi UFJ Financial Group Inc. dropped 2.5% and Mizuho Financial Group Inc. skidded 1.9% during the session. The stocks are still up 11.8% and 6.5% so far this month.
A number of exporters added to their sharp recent gains in Tokyo trading as the U.S. dollar rose as high as ¥99.66 during the session, reflecting expectations for aggressive monetary easing by the Bank of Japan. But the dollar slipped to ¥98.89 in early European trade.
Camera maker Canon Inc. ended up 2.1%, industrial automation major Fanuc Corp. rallied 2.8%, and Nissan Motor Co. climbed 0.8%. Fanuc also received some support from Crédit Suisse’s upgrade of its stock rating to outperform.
Several resource-sector stocks got a boost from Alcoa Inc. , which reported a nearly 60% jump in quarterly profits.
Among Alcoa’s peers, Alumina Ltd. jumped 5% in Sydney, while Aluminum Corp. of China Ltd. climbed 2.5% in Hong Kong afternoon trade and ended 0.7% up in Shanghai.
“Alcoa’s result gives a mildly positive tone to the opening of the U.S. earnings season, which often sets the direction for world markets,” said CMC’s Spooner.
Regional airlines also advanced, looking past fears related to the spread of a new strain of avian flu in China which had slammed their shares in recent session.
Air China Ltd. rose 0.8% and China Southern Airlines Co. added 0.3% in Shanghai, while Hang Seng Index-constituent Cathay Pacific Airways Ltd. advanced 1.7% in Hong Kong trade.
Elsewhere, China Airlines Ltd. rose 0.5% in Taipei, while Qantas Airways Ltd. climbed 1.4% in Sydney.
The gains came as analysts at Credit Suisse upgraded the region’s airlines to overweight, following the recent sell-off.
“We view the current weakness in the sector as a buying opportunity, given the unchanged economic backdrop. At this juncture, it is a process of deciding at what price fundamentals become absolutely attractive,” they said.