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She got the wrong leg up!

Stocks and Money: The Empire Strikes Back!

After being hammered and pummeled for weeks, the empire finally strikes back.

Asian stocks rallied for a third straight day on May 28 as China’s pledge to remain invested in Europe lifted sentiment though the euro surrendered some of its gains after rebounding from near four-year lows the previous day.

Higher yielding currencies like the Australian and New Zealand dollars surged on demand for riskier assets and the Japanese yen, which benefits from risk aversion, lost ground, boosting exporter shares in Tokyo.

Japan’s benchmark Nikkei, rebounding from a six-month low yesterday, rose over 1.7 per cent to its highest this week while the recovery in commodities support a rally in the Australian stock market.

“The phase of sharp erosion in sentiment may now be behind us, though unstable stock moves will likely continue for a while,” said Tsuyoshi Segawa, an equity strategist at Mizuho Securities in Tokyo, adding seasonal position unwinding in May by hedge funds would add to the volatility.

The MSCI index of Asia Pacific stocks outside Japan rose 1.9 per cent adding to the previous day’s 2.2 per cent gains. It is on track for its biggest weekly percentage gain since early March.

The Korea Composite Stock Price Index (KOSPI) climbed 0.7 per cent as foreigners turned net buyers of stocks after a nine-session selling streak, which was the longest since March 2009.

The People’s Bank of China said yesterday a Financial Times report that Beijing's concerns about its euro-zone bond holdings due to the European debt crisis was groundless.

The report had driven the euro to a near four-year low against the dollar and near an 8½-year low against the yen, and soured risk appetite globally as investors worried that Europe’s debt woes would grow into a larger financial crisis.

Beijing’s denial fuelled a rally on Wall Street, with the benchmark S&P 500 rising  by the biggest percentage gain in nearly three weeks.

In Asia, energy and financial services sectors were the main outperformers while defensive sectors like utilities were laggards.

The euro initially got a major lift from short-covering following China’s denial, but slipped back as worries about Europe’s debt problems returned to haunt investors who sold into the single currency’s strength.

In Asian trade, the euro was down 0.6 per cent from late New York at US$1.2292 against the dollar and is down 0.5 per cent against the yen at 112.02 yen.

“In our view, uncertainty remains in Europe and the sources of worries could resurface,” said a note from Credit Agricole CIB.

“It could come from the negative economic impact of the fiscal adjustment or from the sometimes difficult coordination between the Eurozone’s members. There could also be market talks coming back about the issue of government debt restructuring.”

The improved market sentiment supported the Australian dollar and the New Zealand dollar, which held on to yesterday’s steep gains of 3.5 per cent and 3.1 per cent against the dollar, respectively.

Metals were steady to marginally higher with copper hitting a two-week high on the heels of the flight to riskier assets while the jump in oil prices was additionally helped by speculations about supply disruptions due to the Atlantic hurricane season.

On the whole, things should appear fair on the horizon, though there may be some choppy waters to prevent a smooth sail back to better times!