Global financial markets staged a relief rally after centrist French presidential candidate Emmanuel Macron won the first round of voting there and solidified his prospects of becoming France's next leader.
The euro saw initial gains of almost 2% versus the dollar, hitting a five-month high, and more than 3% against the yen before pulling back. Other havens including gold and U.S. Treasurys sold off while S&P 500 futures gained 0.8%.
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But, Chinese stocks badly underperformed as recent selling accelerated. Local factors have been pressuring equities there, namely worries about potential government action on the markets.
"There are no signs that regulators are going to ease the intensity of their campaign, so I think we are in for a period of downward correction, " said Zhang Gang, senior analyst at Central China Securities Co. The Shanghai Composite Index was down 1.3%, while the smaller Shenzhen Composite Index was off 1.8%.
The French election, though, is what has been the market's focus to start the week. Mr. Macron won the first round with 23.9% of the vote, according an official tally of 96% of votes, with far-right candidate Marine Le Pen next at 21.4% and two other challengers several percentage points behind.
The results assuaged market fears of a victory for the nationalist Ms. Le Pen, who has expressed a desire to take France out of the European Union and is considered a wild card for financial markets.
"We didn't think she would win, but we saw two big surprise endings last year," said Yusuke Sakai, senior trader at T&D Asset Management, referring to Donald Trump's election and the U.K.'s Brexit vote.
Amid near-1% declines for the yen, Japan's Nikkei Stock Average finished morning trading up 1.3%. But those currency-fueled gains were an outlier in the Asia-Pacific region: New Zealand's benchmark index climbed 0.5%, while Korea's Kospi climbed 0.3% as stocks were barely holding on to gains in Australia and Hong Kong.
While the yen sold off, the euro was widely up 1% or more versus major currencies. But observers put some of that down to a lack of liquidity as well as a rally in optimism.
That optimism also sent gold futures down some 1% toward $1,275 a troy ounce and 10-year Treasury yields to 2.31% from late Friday's 2.23%.
The French election's final round is set for May 7, and many in the market don't see a Trump-style surprise occurring.
"With Macron heavily favored in head-to-head polling against Le Pen, it seems most likely that the negative market scenarios--priced in over recent weeks--will recede between now and the runoff," said Timothy Graf, head of macro strategy for Europe, the Middle East and Africa at State Street Global Markets.
Still, with earnings season in full swing, traders' attention is likely to be diverted.
"A blockbuster week for U.S. and, to a lesser extent, European corporate earnings will likely prove to be the ultimate arbiter of direction," said Marc Ostwald, a strategist at ADM Investor Services International.
Kosaku Narioka and Shen Hong contributed to this article.
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(END) Dow Jones Newswires
April 23, 2017 23:44 ET (03:44 GMT)