Picture: REUTERS
Picture: REUTERS

TOKYO — Asian shares rose on Monday, supported by hope that US politicians can overcome an imminent fiscal crunch, while the yen fell to a low of nearly seven months against the dollar on expectation that a new government chosen in next month’s election could pump large amounts of stimulus cash into the economy.

A 0.2% gain in US stock futures point to a firm Wall Street open, and financial spread betters predict London’s FTSE 100, Paris’s CAC 40 and Frankfurt’s DAX will open as much as 0.9% higher.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5%, recovering from Friday’s nine-week low.

Its energy sector outperformed as oil prices rose on growing concern about supply in response to escalating tension from Israeli air strikes on the Gaza Strip and Hamas rocket attacks on Israel.

The materials sector was among top gainers as London copper rallied 1% to $7,684 a tonne on a renewed growth outlook for China and hopes for a solution to the US fiscal cliff.

Australian shares climbed 0.6% but Shanghai shares underperformed with a 0.5% drop, having earlier touched levels not seen since early 2009.

"We had some positive leads from the US on Friday. Our market had been underperforming last week," City Index chief market analyst Peter Esho said of Australian equities.

"There’s some hope that the negotiations in the US around the fiscal situation may somewhat improve — the prospects around that may improve this week."

Japan’s Nikkei average, which bucked the broad Asian downtrend on Friday and surged 2.2%, extended gains with a 1.4% climb to close at a two-month high.

Speculation that the leader of the opposition Liberal Democratic Party, which is expected to win the Dec. 16 elections, will call for more stimulus including further aggressive easing by the Bank of Japan also undermined the yen.

The Bank of Japan began a two-day policy meeting on Monday, and is expected to refrain from taking fresh policy steps.

The dollar hit a near seven-month high against the yen at ¥81,59 on Monday. A weaker yen helps support the economy and boosts sentiment for Japanese equities investors.

A senior trader at a foreign bank said investors had been underweight Japanese equities and the rally could have further to go as they start to put their money into Japan, advising investors to cover their positions in very heavily short-sold sectors such as electronics.

Eyes on fiscal cliff, Greece

Aside from Japanese politics, market players closely watched negotiations among US Congressional leaders to avoid a budget crisis, and prepared for European officials’ meeting on Tuesday to discuss aid for debt-stricken Greece.

Hope that US politicians would find a way to steer clear of the "fiscal cliff" boosted US stocks on Friday. European shares sank to a three-and-a-half-month closing low, for their worst week since the end of May, on persistent concern about US fiscal policy and the eurozone debt crisis.

Top legislators from both major US political parties on Friday hinted at the possibility of a budget compromise that involves spending cuts and additional revenue, although they were short on details.

"The good news is the tone of Friday’s White House meeting but the prospect of no agreement until at least mid-December fits our view that the two sides are starting negotiations from rather distant points," Sean Callow, senior currency strategist at Westpac bank in Sydney, said in a note.

"As such, there will be plenty of negative headlines in coming weeks that weigh on Treasury yields and boost the dollar, which is yet again trading like a safe haven even when the bad news is generated by the US."

The dollar index fell 0.2%, retreating from the two-month high of 81.455 hit on Friday against a basket of key currencies.

The drop in the dollar supported gold, which added 0.5% to $1,721.60 an ounce.

The euro rose 0.1% to $1.2760, with traders waiting to know whether eurozone finance ministers and International Monetary Fund MD Christine Lagarde would agree a way to make Greece’s debt manageable.

"As the EU prepares a bundled aid package to avert a Greek default, headlines coming out of the meeting may fuel a relief rally in the euro, but we will maintain our bearish forecast for the single currency as the region faces a deepening recession," said David Song, currency analyst at DailyFX.

US crude futures jumped 1% to 87.81 a barrel and Brent rose 0.7% to $109.70.

Asian credit market spreads on the iTraxx Asia ex-Japan investment-grade index were little changed.

Reuters