* 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
By Kevin Plumberg
HONG KONG, March 18 (Reuters) - Bank shares powered ahead
in Asia on Wednesday to underpin regional markets, while
Japanese government bond futures edged up after the Bank of
Japan sharply increased the debt it would buy to support the
economy.
U.S. Treasuries also rose modestly 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 take bold steps to pull their economies out of
recession.
Major European stock markets were expected to open as much
as 1.4 percent higher, according to financial bookmakers, after
data showing a surprising jump in U.S. housing starts pushed
Wall Street shares up around 3 percent.
Shares of large Japanese banks outperformed the broad
market, supported by a Bank of Japan announcement on Tuesday
that 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 is quickly shifting to the outcome of a Fed
meeting later in the day and whether U.S. economic conditions
warrant 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."
The MSCI index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> inched up 0.7 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 <> closed 0.3 percent
higher, posting 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 1.4 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 may take to achieve
stability.
The Bank of Japan said on Wednesday it would increase
purchases of government bonds by almost a third, a move seen
supporting government plans for more spending to cushion the
country's worst recession since World War Two. []
The 10-year Japanese government bond future 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, such as for mortgages, following a similar
move by the Bank of England earlier this month.
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 in a note.
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 0.3 percent on the day at $1.3050 <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 cut gains to trade up 0.2 percent
at 128.53 yen <EURJPY=>.
Gold fell 0.5 percent to $908.80 per ounce <XAU=> in the
spot market, still vulnerable to bouts of profit taking as a
global equity market rally remained alive.
U.S. crude for April delivery fell 1.2 percent to $48.57 a
barrel <CLc1> after gaining 2.9 percent overnight after U.S.
housing market data showed the biggest monthly gain in starts
since 1990.
(State of play in Asian stock markets, click <>))
(Editing by Neil Fullick)
