Asian stocks ride global relief as investors shake off Omicron fears

HONG KONG: Asian shares hit a near two-week top on Wednesday, extending a global relief rally as investors cheered signs the Omicron variant of the coronavirus may be less disruptive to the world economy than first feared.

U.S. S&P 500 and Nasdaq futures also gained, rising 0.3% and 0.4%, respectively, while pan-European Euro Stoxx 50 futures were flat.

"Markets are very sensitive to any small news item relating to Omicron, and the absence of bad news is being taken very positively by equity markets, though - and I'm not a scientist - it seems too early to signal an all clear," said Stefan Hofer, chief investment strategist for private bank LGT in Asia Pacific.

"With each new variant, we go through a period of waiting for some signal from the scientific community, which is difficult for markets, but that's what we got yesterday." MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5% to its highest level since Nov. 26, when news about the new variant roiled markets. Japan's Nikkei rose 1.2%.

Gains were broad-based with Korea's KOSPI touching a six-week-high.

British drugmaker GSK said on Tuesday its antibody-based COVID-19 therapy with U.S. partner Vir Biotechnology is effective against all mutations of Omicron.

Also a South African study on Tuesday suggested that booster doses of the COVID-19 vaccine produced by Pfizer Inc and partner BioNTech's could help fend off Omicron infection, although the study showed the new strain can partially evade protection from two doses.

Those reports helped MSCI's all-country world index rise 2.1% on Tuesday, its biggest percentage gain since November 2020. Oil also rose over 3%.

Markets are also focused on U.S. inflation data due Friday, with a high print likely to point policymakers towards accelerating the tapering of the Federal Reserve's massive bond buying programme.

"The relief rally could be quite short-lived if U.S. data on Friday shows high inflation is looking sticky, or persistent - pick a word that isn't transitory," said Hofer.

Last week, Fed Chair Jerome Powell said it might be time to stop seeing inflation as transitory, suggesting the central bank might speed up tapering.

On Wednesday, the two-year yield, which rises with expectations of higher interest rates, was at 0.6872%, just off Tuesday's near two-year high of 0.6950%.

The benchmark U.S. 10-year Treasury yield was steady at 1.4614% after two days of gains.

That ought to support the dollar in the longer term, particularly against other currencies with more dovish central banks.

However, the improved investor mood is for now supporting risk assets like the Australian dollar, which hit a week high of $0.7435 on Wednesday, recovering from a 13-month low early in the week.

China's yuan strengthened with both onshore and offshore units touching their firmest levels against the dollar in more than three-and-a-half years The euro also gained a little ground and the Canadian dollar stayed strong at 1.2637 per U.S. dollar supported by the overnight rise in oil prices, and ahead of a Bank of Canada policy meet later Wednesday.

Economists expect the Bank of Canada to keep rates unchanged at 0.25% at the meeting. Earlier on Wednesday, India's central bank kept its key lending rate steady.

U.S. crude dipped 0.17% to $71.93 a barrel. Brent crude fell 0.11% to $75.36 per barrel.

Spot gold rose 0.3% to $1,789 an ounce, within its recent range, and rival inflation hedge, bitcoin was also calm after an exciting weekend, barely changed at $50,300. - Reuters