* Hong Kong stocks outperform, led by 5 pct rise in HSBC
* Japan's Nikkei dips though banks outperform again
* Bank of Japan to sharply boost government bond purchases
* Speculation rampant over Fed stance on buying Treasuries
(Repeats to more subscribers)
By Kevin Plumberg
HONG KONG, March 18 (Reuters) - Asian stocks drifted higher
on Wednesday as banks extended gains, while Japanese government
bonds rose after the Bank of Japan sharply increased the amount
of government debt it would purchase to support the economy.
U.S. Treasuries also edged up on speculation the Federal
Reserve may take the unorthodox step of buying government debt
to push down interest rates as central banks around the world
look for new tools to pull their economies out of recession.
Shares of large Japanese banks outperformed the broad
market after the Bank of Japan said on Tuesday it would offer
$10.2 billion in subordinated loans to lenders to shore up
their capital base, as the policy response in the world's
second-largest economy continued in steady increments.
The focus quickly shifted to the outcome of a Fed meeting
later in the day and whether the U.S. economic conditions
warranted additional steps by policymakers to revive lending.
"If they can continue to get responses from the market from
the other methods they are using in quantitative easing, then
they won't buy Treasuries," said Al Clark, head of multi asset,
Asia Pacific with Schroders in Singapore.
"The minute they buy Treasuries, there is a certain
perception associated with that, which might hit the dollar."
Gains in U.S. stocks overnight after an unexpected jump in
housing starts buoyed sentiment, but investors were cautious
over whether the rally was sustainable amid gloomy forecasts
for the global economy and corporate profits.
The MSCI index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> inched up 0.4 percent after climbing more than
7 percent since the month began.
Twenty-day rolling returns on the index of 4 percent
exceeded the 0.7 decline on the MSCI all-country world index
<.MIWD00000PUS> and the roughly 3 percent yielded by the
10-year U.S. Treasury note <US10YT=RR>.
Japan's Nikkei share average <> dipped 0.7 percent
after briefly trading at a five-week high.
Banks were some of the clear outperformers, with Sumitomo
Mitsui Financial Group <8316.T> and Mizuho Financial Group
<8411.T> both up 3 percent on hopes the global financial system
was stabilising.
Hong Kong's Hang Seng index <> rose 1.5 percent,
propelled by a 5 percent jump in shares of HSBC <0005.HK>.
Bargain hunters and institutional investors have laid waste
to short sellers of Europe's largest lender, with the stock up
nearly 40 percent since last week when doubts grew ahead of a
massive rights issue.
POLICY WATCH
With the average policy rate among central banks in the
Group of Seven rich nations at a mere 0.55 percent but economic
data continuing to reflect weakness, investors have zeroed in
on what other actions policymakers will take to achieve
stability.
The Bank of Japan said on Wednesday it would increase
purchases of government bonds by almost a third to "smooth
market operations" as the government prepares more spending to
cushion the country's worst recession since World War Two.
[]
The 10-year Japanese government bond futures rose 0.3 point
<2JGBv1> following the BOJ move, while in the cash market the
10-year yield <JP10YTN=JBTC> was virtually unchanged on the
day.
U.S. Treasuries crept higher as some dealers bet the Fed
would lean closer to buying long-dated government debt to pull
down interest rates of things like mortgages.
The yield on the benchmark 10-year note ticked down to 2.99
from 3.0 percent overnight in New York. Since the beginning of
the year, the yield has risen some 75 basis points but has
stopped cold at around 3 percent.
Uncertainty about what the Fed and other policymakers are
willing to do has kept investors cautious about diving back
into riskier fixed-income products or straying too far from
long-maturity government debt.
"Having lowered interest rates aggressively, authorities
are now turning to less conventional measures such as
quantitative easing. The extent and timing of the positive
impact of this policy on the economy is not yet known and the
short-term effect on markets may be heightened volatility,"
said Quentin Fitzsimmons, a fund manager at Threadneedle in
London.
The euro held close to a recent one-month high on the
dollar and briefly forged an 11-week peak against the yen, as
increasing tolerance of risk among investors inspired them to
leave behind currencies associated with relative safety.
The euro was up slightly on the day at $1.3030 <EUR=> and
hovered below Monday's five-week high of $1.3072.
The euro hit its highest since late December at 128.83 yen
in early Asian trade but then retreated to stabilise almost
unchanged on the day at 128.28 yen <EURJPY=>.
Gold slipped 0.2 percent to $912.50 per ounce <XAU=> in the
spot market, still vulnerable to bouts of profit taking as a
global equity market rally kept alive.
U.S. crude for April delivery fell 1 percent to $48.60 a
barrel <CLc1> after gaining 2.9 percent overnight after U.S.
housing market data showed the biggest monthly gain in starts
since 1990.
(Editing by Kim Coghill)
(For the state of play of Asian stock markets please click
on: <>))
