Shares rise on euro zone bank relief, data in focus

TOKYO: Asian shares rose on Monday with sentiment brightening at the start of the third quarter after Europe agreed to shore up the region's banks, while investor attention is turning to the health of the U.S. economy.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.3 percent, after soaring 2.7 percent on Friday for its biggest one-day rise in more than six months. The MSCI Asia ex-Japan share index ended April-June down 7.4 percent, after rising for the previous two quarters.

U.S. and European stocks rallied more than 2 percent on Friday.

Japan's Nikkei average opened up 1.1 percent, adding to Friday's 1.5 percent gain when it rose above the key 9,000 level for the first time in 7 weeks.

The euro took a breather, edging down 0.2 percent to $1.2644 , after spiking 1.7 percent against the dollar to a high of $1.2693 on Friday, its biggest one-day jump in eight months.

"The agreement by euro zone leaders gives relief especially for the banking sector and supports the euro," said Yuji Saito, director of foreign exchange at Credit Agricole Bank in Tokyo.

"Their agreement offered a direction but details are yet to be worked out, and that will limit the euro's upside. Still, with concerns over the euro zone's debt crisis easing for now, the focus this week turns to U.S. data, including the monthly jobs report," he said.

Helping to nudge the yen up against the dollar, big Japanese manufacturers' sentiment improved in the second quarter from the previous quarter, a closely watched Bank of Japan survey showed.

The dollar eased 0.1 percent at 79.79.

Assets across the board rallied on Friday after euro zone leaders agreed to let their rescue fund inject aid directly into stricken banks from next year and intervene on bond markets to support troubled member states.

The step relieved credit market strains which had threatened to send struggling Spain close to seeking an international bailout, pushing Spanish and Italian debt yields sharply lower.

EU leaders also pledged to create a single banking supervisor for the region's banks based around the European Central Bank in a landmark first step towards a European banking union.

U.S. crude fell 0.5 percent to $84.51 a barrel, after shooting up $7.27 to settle just below $85 on Friday, the fourth largest daily gain in dollar terms since the contracts were launched. Brent was also down 0.5 percent at $97.32, after rising more than $6 for its biggest one-day rise since April 2009.

Reflecting rapidly fading risk aversion, the CBOE Volatility index, which measures expected volatility in the Standard & Poor's 500 index over the next 30 days, slumped 13.34 percent on Friday, its biggest one day drop in 2-1/2 months.

The positive effect from Europe overcame weak data from China over the weekend, but similar weakness in manufacturing from other regions could start to weigh on sentiment.

China's government purchasing managers' index fell to 50.2 in June to a seven-month low, ahead of expectations but still showing growth in manufacturing sector activity was close to stalling. Shrinking new orders and the steepest fall in export orders since December suggested no immediate pick-up for the world's second-biggest economy.

Early on Monday, a private-sector survey also showed South Korea's manufacturing activity shrank in June for the first time in five months, as the crisis in Europe hit global demand for exports.

Purchasing managers' data is due to be releaed from Europe and the United States, as well as India.

Asian credit markets firmed slightly, pushing the spread on the iTraxx Asia ex-Japan investment-grade index narrower by 2 basis points. - Reuters

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