* Asia stocks hit 7-month high, powered by Taiwan surge
* Aussie at 7-mth peak as risk appetite stays strong
* Dollar and yen dip, commodities gain on reflation bets
* Korean bond futures post biggest 1-day drop in 6 weeks
By Eric Burroughs
HONG KONG, May 4 (Reuters) - Asian stocks punched to a
seven-month peak on Monday, fuelled by confidence the global
economy is recovering faster than expected and a further jump
in Taiwanese shares on hopes for an influx of Chinese
investment.
Taiwan's benchmark TAIEX index <> soared 5.6 percent,
taking gains to 12.8 percent in just two days as investors see
a a wide-reaching deal coming later in the year that would spur
heavy Chinese investment in the island, especially in financial
firms. []
The surge in Taiwan added to the broad gains across Asia as
evidence has mounted that global trade is starting to pick up,
highlighted by brokerage CLSA's gauge of Chinese manufacturing
activity rebounding to a nine-month high in April.
[]
Investors have largely brushed aside worries that the
global H1N1 flu outbreak could turn into a serious pandemic.
[]
"The flu fears seem to be fading as the danger of it
spreading seems to be lower now. On the other hand, we have
China's PMI data, which seems to signal continued recovery for
the economy, yet another reason to stay bullish," said Castor
Pang, strategist with Sun Hung Kai Financial in Hong Kong.
The Australian dollar, seen as the currency market's
bellwether for risk-taking, struck a seven-month peak. Oil and
gold prices edged up, while safe-haven government bonds
retreated.
Data last week in Asia showed South Korean exports and
industrial production both improving more quickly than
expected, suggesting that regional exporters are needing to
step up activity after having aggressively slashed inventories
of goods.
The U.S. Institute for Supply Management's factory survey
on Friday also showed a jump in the new orders index, an
important leading indicator adding to the evidence of a
recovery taking shape.
"The global manufacturing cycle appears to be gaining
momentum," said economists at Societe Generale in a note to
clients.
Investors are also feeling more confident that the U.S.
financial system has already suffered the worst of its crisis
and is getting healthier, just before the government releases
the results of stress tests later this week.
The MSCI index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> was up 4.6 percent, its highest level since
mid-October and taking its two-month rally to 45percent from
the low hit in early March. Financial and technology shares
powered the rise.
Foreign investors have seized on the rally as an
opportunity to allocate more funds to Asia. Fund tracker EPFR
Global said that Asia ex-Japan equity funds were the main
emerging markets money magnet during the week ending last
Wednesday.
On Friday the U.S. S&P 500 <.SPX> edged up 0.5 percent, and
S&P futures <SPc1> were pointing to a further rise later in the
day.
Trading was active even with Japanese financial markets
closed on Monday for the first of three straight holidays, part
of the country's Golden Week break. Many other markets in the
region reopened after labour day holidays.
AUSSIE RUN EXTENDS, KOREAN BONDS FALL
The Australian dollar <AUD=D4> was up 0.7 percent at
$0.7353 after hitting a seven-month high of $0.7390 as market
players favoured the currency still offering a 3 percent yield
in a world where U.S. and Japanese short-term yields are pinned
near zero.
The dollar edged up 0.3 percent against the yen to 99.44
yen <JPY=> but was down against most other major currencies as
safe-haven flows switched gears. The dollar index <.DXY> was
down 0.2 percent, while the euro was up 0.1 percent at $1.3300
<EUR=>.
The dollar's losses and bets the global economy is slowly
refleating lifted commodity prices. U.S. crude oil <CLc1>
inched up 25 cents to $53.45 a barrel, while gold was up $8 an
ounce at $893.80 <XAU=>.
Government bond yields and swap rates rose further as
investors feared missing out on the equity rally and shifted
funds away from safe-haven holdings.
In Korea, government bond futures <KTBc1> shed 0.55 point
to 111.01, the biggest drop in six weeks, as the equity rally
and signs of economic improvement offset hopes the country may
soon be included in the Citigroup World Government Bond Index.
Last week South Korean lawmakers approved a plan that would
give tax advantages to foreign investors in local currency
bonds, a step that could pave the wave for it to be included in
the Citigroup index tracked by investors managing some $1
trillion in debt. []
Benchmark five-year Korean bond yields <KR5YT=KSDA> were up
16 basis points at 4.33 percent and taking the two-day rise to
26 basis points. Korean swap rates <KRWIRS> jumped even more
quickly, causing swap curves to steepen.
(Additional reporting by Parvathy Ullatil in Hong Kong and
Kim Yeon-hee in Seoul; Editing by Tomasz Janowski)
