TOKYO – Asian shares advanced with returning risk appetite on Friday as overnight data suggested some stabilization in the global recovery trend, particularly in the United States and China.
Positive U.S. private sector employment and consumer confidence reports drove the dollar higher, while the yen retreated as demand for safe-haven assets weakened.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> climbed 0.6 percent to a near two-week high, tracking European and U.S. stocks which on Thursday gained on factory activity picking up moderately in China, which has spawned global growth in recent years.
Business surveys and data released on Thursday showed other big Asian economies were slowly recovering as well, but there were mixed signals about the health of U.S. manufacturing.
Improving U.S. and Chinese economic conditions lifted resources-reliant Australian shares 0.2 percent. The risk-sensitive Australian dollar earlier rose to a five-week high of $1.0420.
"Downside risks are lessening," said Toru Yamamoto, chief strategist at Daiwa Securities.
Thanks to the developments in the U.S. and China, he added, global conditions appear to be getting better, and that "points to a nuanced improvement in sentiment."
Hong Kong's Hang Seng Index outperformed Asian peers with a 1.1 percent jump to a 15-month high, buoyed by strength in Chinese financials and growth-sensitive sectors.
The Hong Kong Monetary Authority stepped into the currency market during New York's Thursday trading hours to combat the local currency's persistent move to the strong end of its trading range, suggesting investors could be looking to position for a rally in Chinese equities listed in Hong Kong.
More capital inflows into Hong Kong are expected and could be a source for further strength for a year-end rally after the party congress that starts next week and might alleviate some political uncertainty in China.
Japan's Nikkei average <.N225> climbed 1.3 percent to a one-week high as a weaker yen underpinned sentiment.
The dollar inched up 0.2 percent against the yen to 80.29, nearing a four-month high of 80.38 hit last week. The yen also eased 0.1 percent against both the Aussie at 83.42 yen and against the euro at 103.81 yen.
Investors will eye U.S. nonfarm payrolls due at 1230 GMT, which is expected to show employers added 125,000 jobs in October and the jobless rate to tick up to 7.9 percent from September's 7.8 percent.
Payrolls processor ADP reported on Thursday that U.S. companies added jobs in October at the fastest pace in eight months while new claims for jobless benefits fell last week.
U.S. ELECTIONS NEXT FOCUS
Positive economic news could affect the outcome of the November 6 elections while easing pressure for more monetary easing, pushing up Treasury yields and lifting the dollar.
"Market impact from the U.S. jobs data may in the end be offset by the outcome of the presidential election," said Daiwa's Yamamoto.
A rise in equities in the wake of a solid jobs report may be countered if President Barack Obama wins, as his re-election will be perceived as negative for equities, while weakness in stocks due to a soft data could be recovered if Republican Mitt Romney wins, as markets see him as stock-friendly, Yamamoto said.
"Asian economic indicators are consistent with a risk-on strategy, but we remain risk selective," said Morgan Stanley in a research note.
"The outcome of the U.S. presidential election is a close call, leaving markets concerned about whether the newly elected president will have the political capability to deal with the fiscal cliff," undermining the recent economic rebound, it said.
After the U.S. election, Congress must deal with a "fiscal cliff" - up to $600 billion in expiring tax cuts and spending reductions that are set to kick in next year - which threatens to hurt the U.S. economy.
The euro remained in the recent $1.28-$1.32 range, easing 0.1 percent to $1.2933 due to worries over Greece and Spain.
Reports on manufacturing activity in major euro zone countries are due on Friday and expected to show continued economic contraction.
U.S. crude eased 0.2 percent to $86.95 a barrel and Brent was down 0.1 percent at $108.06.
Brent crude prices fell on Thursday on returning North Sea supply and euro-zone concerns, while U.S. crude futures climbed nearly 1 percent on supportive economic data and a drop in crude oil inventories.
Asian credit markets recovered, tightening the spread on the iTraxx Asia ex-Japan investment-grade index by 4 basis points.
(Additional reporting by Clement Tan in Hong Kong; Editing by Michael Perry)