Asian shares rise, dollar sways as slowing rate hike looms

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By Ankur Banerjee

SINGAPORE (Reuters) - Asian equities jumped on Thursday, while the dollar slid as investors poured into risky assets after Federal Reserve Chair Jerome Powell opened the door to a slowdown in the pace of monetary tightening.

In an eagerly-awaited speech, Powell said the central bank could scale back the pace of its interest rate hikes "as soon as December," but cautioned the fight against inflation was far from over.

Powell's comments at the Brookings Institution in Washington sent the U.S. dollar and Treasury yields lower, while stocks soared with MSCI's broadest index of Asia-Pacific shares outside Japan 1.65% higher.

The index posted its biggest monthly gain in nearly 30 years in November as hopes for a Fed pivot towards slower rate hikes gathered steam after four consecutive 75-basis-point increases. But the index was still down about 17.8% on the year.

European markets are set to continue the risk-on mood, with the pan-region Eurostoxx 50 futures up 1.29%, German DAX futures 1.31% higher and FTSE futures 0.36% advanced. E-mini futures for the S&P 500 rose 0.26%.

ING regional head of research Robert Carnell said it will be very hard now for the Fed to push back against market expectations for a slowdown in rate hikes.

"It looks as if Fed Chair Powell didn't get the memo to push back against pivot hopes and keep financial conditions tight before he went to give his speech," he said.

"So let's hope that inflation does keep on falling, or this may look like a missed opportunity."

Markets are currently pricing in a 91% probability that the Fed will increase rates by 50 basis points on Dec. 14, and see a 9% chance of another 75 basis point hike.

The dollar has rallied against every major currency this year, boosted by the Fed's Reserve's supersized interest rate hikes to tame scorching hot inflation. But hopes of a change in Fed's policy has spurred bets the peak for rates, and the greenback, may be in the view.

The dollar index - which measures the currency against six major peers including the yen and euro - extended Wednesday's more than 1% drop into Thursday, dipping a further 0.28% to 105.48.

Investors saw Powell's speech as signalling the FOMC would become more judicious in deciding future rate hikes, said Steve Englander, Standard Chartered (OTC:SCBFF)'s head of global G10 FX research.

"Powell was not overly dovish, but with his previous comments having been seen as intentionally hawkish, this set of comments anchored 50 bps as the almost certain hike in December," he added.

Over in China, China stocks rose nearly 1%% and Hong Kong shares rose 1.6% as investors cheered signs of some relaxation in China's strict anti-COVID curbs.

Expectations have grown around the world that China, while still trying to contain infections, could look to re-open at some point next year once it achieves better vaccination rates among its elderly.

China's factory activity shrank in November as widespread curbs disrupted manufacturers' output, a private sector survey showed on Thursday, weighing on employment and economic growth in the third quarter.

Meanwhile, the yield on 10-year Treasury notes was down 8.5 basis points to 3.616%, while the yield on the 30-year Treasury bond was down 7.8 basis points to 3.745%.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 3.5 basis points at 4.337%.

The Japanese yen strengthened 1.19% versus the greenback at 136.43 per dollar, while sterling was last trading at $1.2101, up 0.37% on the day.

In commodity markets, gold prices climbed to a two-week high in early Asian trade on Thursday. Spot gold added 0.6% to $1,779.39 an ounce. U.S. gold futures gained 2.08% to $1,782.30 an ounce.

Oil prices dipped on Thursday as uncertainty lingered ahead of Sunday's OPEC+ meeting, though easing China COVD curbscapped price decline.

U.S. crude fell 0.05% to $80.51 per barrel and Brent was at $86.87, down 0.11%.