Stablilising China, US budget talks inflict mixed reaction on Asian shares

Asian shares edged higher on Monday as further signs of a stabilising Chinese economy boosted sentiment, but stagnant US budget talks which threaten to derail the world's largest economy kept investors cautious and capped prices. Investors will be eyeing more Asian data on Monday, manufacturing surveys from China, Korea and India, for further signs of economic recovery.

MSCI's broadest index of Asia-Pacific shares outside Japan nudged up 0.2% to a fresh nine-month high, after closing at its highest since February 29 on Friday and ending November with a monthly gain of 2.1%. Australian shares rose 0.4% to a four-week high, led by miners after favourable Chinese manufacturing data at the weekend and expectations for a local rate cut this week to boost the economy. South Korean shares opened up 0.2%.

On Saturday, data showed the country's exports posted their first back-to-back growth of the year. Adding to hopes Asia's fourth-largest economy may be gradually improving, a private survey showed on Monday South Korea's manufacturing sector in November shrank for the sixth consecutive month but at a slower pace than in October.

"The KOSPI is expected to kick off the session in the positive territory because of data from here and China. But for the day, the index will be lacklustre because of political wrangles over the fiscal cliff," Kim Hak-kyun, an analyst at KDB Daewoo Securities, said of Seoul shares. Kim said an announcement by North Korea that it would carry out its second rocket launch of 2012 would have little impact on the stock market, as the geographical risk was nothing new to investors. Japan's Nikkei stock average opened 0.4% higher, after closing Friday at a seven-month high and ending November up 5.8% for its best performance since February.

China's official manufacturing purchasing managers' index (PMI) rose to a 7-month high of 50.6 in November, following up on a preliminary private sector survey which revealed factory activity reviving to a 13-month high. The results preceded the release later on Monday of a survey of the non-manufacturing sector, as well as HSBC's final PMI reading for last month. "We believe that China's near-term outlook remains positive as the political uncertainties have dissipated after a smooth leadership transition," ANZ said in a research note.

A series of central banks including the Reserve Bank of Australia, the European Central Bank and the Bank of England, will hold their policy meetings this week. The monthly U.S. nonfarm payrolls data is due out on Friday.

Anxiety Gauge Mixed
Major stock market indexes closed little changed and Treasury yields slipped on safe-haven demand on Friday as the stalemate in US budget talks fuelled concerns about slowing global economic growth. European stocks, while ending slightly down on Friday, posted solid monthly gains, partly thanks to growing views that the worst of Europe's debt crisis is over. The Euro STOXX 50 Volatility Index, or VSTOXX, Europe's widely-used measure of investor risk aversion, fell to 16.26, a level not seen since mid-2007 on Friday.

Data from EPFR Global showed on Friday that investors pumped the most into U.S. stock funds in over a year, even as U.S. lawmakers sparred over the looming "fiscal cliff" of combined tax hikes and spending cuts, while worldwide, stock funds took in $14.86 billion in the week ended November 28, the second-largest total since 2008.

But the CBOE Volatility Index, which measures expected volatility in the Standard & Poor's 500 index, jumped 5.4 percent on Friday for its largest daily gain in two weeks, reflecting market anxiety over the ongoing budget talks and their impact on the US economy. The euro was up 0.1% at $1.2996, but retreating from Friday's high of $1.3029, its highest in nearly six weeks, pressured after Moody's downgraded the credit ratings on the European Stability Mechanism and the European Financial Stability Fund last week.

The dollar was up 0.1% at 82.43 yen, hovering near a 7-1/2-month high of 82.84 yen touched on November 22. According to data from the Commodity Futures Trading Commission released on Friday, currency speculators in the latest week boosted short yen positions to the highest since the beginning of May, 2007, riding on speculation that a likely change in Japan's government would lead to more aggressive monetary easing. Oil steadied, with US crude futures up 0.1% to $89.03 a barrel.