Asian markets look set to fare better, pound battered

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.09 percent. Australian stocks were flat and Japan's Nikkei rose 0.4 percent. South Korea's KOSPI climbed 0.5 percent.

SYDNEY: The British pound lay battered in Asia on Friday after a bout of political turmoil fanned fears the country could crash out of the European Union without a divorce deal.

Asian share markets looked set to fare better as hopes for a thaw in Sino-U.S. trade relations gave Wall Street a fillip, though there were dueling reports on the prospects for an actual agreement.

MSCI's broadest index of Asia-Pacific shares outside Japan was ahead 0.15 percent in very early trade, while Nikkei futures pointed to a firmer opening.

Still, sterling stole the limelight after a rash of resignations rocked Prime Minister Theresa May's government and threw into doubt her long-awaited Brexit agreement just hours after it was unveiled.

Fears that May's hard-fought deal could collapse sent British markets into gyrations not seen since the June 2016 referendum on EU membership.

The pound suffered its worst one-day loss against the euro since October 2016 and was last at 88.68 pence . Against the dollar, it was huddled at $1.2765 after shedding 1.6 percent overnight.

Joseph Capurso, a senior currency strategist at CBA, listed just some of sterling's woes.

"If and when a vote on the withdrawal agreement occurs is uncertain. Whether the withdrawal bill is passed by both houses of Parliament is uncertain."

"Whether the Prime Minister resigns or is challenged for the leadership is uncertain. And, whether there is a second referendum and/or an election is uncertain."

All of which helped British bonds rally sharply as investors wagered the political chaos and risk of a hard Brexit would deter the Bank of England from tightening anytime soon.

Yields on 5-year paper staged the largest one-day decline since the Brexit vote at almost 15 basis points.

DID HE? OR DIDN'T HE?

Absent the British drama, investors chose to be optimistic on the chance of progress on tariffs between the United States and China.

A Financial Times report said U.S. Trade Representative Robert Lighthizer has told some industry executives that another round of U.S. tariffs on Chinese imports has been put on hold.

CNBC later reported that Lighthizer's office had denied the story, but markets were cheered anyway.

The benchmark S&P 500 index <.SPX> gained 1.06 percent to snap five days of losses, while the Dow <.DJI> rose 0.83 percent and the Nasdaq <.IXIC> 1.72 percent. [.N]

The plunge in sterling lifted the dollar against a basket of currencies to 97.066 <.DXY>, even as the euro firmed a touch to $1.1328 . [USD/]

In commodity markets, gold was flat at $1,212.97 .

Oil prices regained some composure after their recent drubbing, helped by a decline in U.S. fuel stockpiles and the possibility of a cut in OPEC output. [O/R]

Brent crude futures rose 58 cents to $66.70 a barrel, while U.S. crude was up 21 cents at $56.46. - Reuters