* Risk-taking revived but uncertainty lingers
* U.S. dollar hits 2-month low vs euro, down vs yen
* Don't let go of recession trades just yet - JPMorgan
(Updates prices, European outlook, adds comments)
By Kevin Plumberg and Xi Chen
HONG KONG, Dec 15 (Reuters) - Asian stocks climbed nearly 4
percent on Monday on renewed hopes the U.S. automaker industry
would be rescued, strengthening willingness to take risks and
knocking the U.S. dollar to a two-month low against the euro.
Investors have been funnelling capital back to emerging
Asia for the last few weeks and word the White House was
considering using some of $700 billion meant to rescue
financial institutions for the struggling car manufacturers
extended the trend.
European stock index futures <STXEc1> were also pointing to
opening gains of at least 2 percent. []
However, worsening U.S. economic data, a rapidly growing
fiscal deficit and the likelihood the Federal Reserve will cut
interest rates again this week all combined to weaken the
dollar.
"The tide seems to have turned around in recent sessions,
with bad U.S. economic news now rightfully hurting the U.S.
dollar rather than helping it stronger," said Nizam Idris,
currency strategist with UBS in Singapore.
"Further commentary regarding any alternative solutions to
the auto sector will be closely followed during the day, and
hence be key to risk sentiment," Idris said in a note.
Oil bounced back $1 to trade above $47 a barrel <CLc1> on
signs that OPEC members might make a deep supply cut to boost
prices when they meet later this week [].
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> rose 3.7 percent on the day and is up about 7
percent so far in December, trying to pull off its first
monthly increase since April.
Japan and South Korea led the region in stock performance.
The Nikkei share average <> rallied 5.2 percent, with
Honda Motor Corp <7267.T> stock rose 8.5 percent, one of the
biggest lifts to the Nikkei.
South Korea's benchmark KOSPI <> share average was up
4.9 percent.
The risk of further declines based on earnings downgrades
has been clearly outweighed by the cheapness of stocks at the
moment. Toyota Motor Co <7203.T> stock is up 9.1 percent even
after Japanese media reported the world's top automaker is
likely to further cut its earnings forecasts and report an
operating loss of $1.1 billion in the October-March period.
[]
Hong Kong's Hang Seng index <> rose 3.1 percent, led by
HSBC <0005.HK> and China Mobile <0941.HK>. China Construction
Bank <0939.HK> and Bank of China (Hong Kong) Ltd <2388.HK> were
the only stocks that fell.
"I am surprised that the equity market is still holding up
so well in Asia. Mutual funds are probably putting their year
end cash balance to work." said Sean Darby, chief Asia
Strategist at Nomura in Hong Kong, on the overall positive
market movement.
In the bond market, the Asia excluding Japan benchmark
iTRAXX investment-grade index <0#ITAIGMPBMK=> tightened by 20
basis points, after widening sharply on Friday's news of
Senate's rejection of auto bail out.
Asian benchmark dollar bonds have not kept pace with the
rally in equity markets, trading near historically wide
spreads, though the cost of insurance against corporate and
sovereign debt default slipped as the environment for risk
gradually improved.
The White House indicated last week it is open to using
part of the bank bailout package for the Big Three car
companies -- Chrysler LLC [], Ford Motor Co <F.N> and
General Motors Corp <GM.N>. A bill that would have provided $14
billion in loans for the firms failed in the Senate on Friday
[].
TOO EARLY FOR RECOVERY
With some equity valuations at distressed levels, some
investors sitting on cash have begun to think about a recovery
at some point in 2009. However, JPMorgan asset allocation
strategists said it might be too early to let go of recession
trades given the global economy is smack in the middle of the
worst downturn since World War Two.
"There remains sufficient uncertainty about the timing of a
recovery that it is quite easy for credit and equities to
cheapen further, and bonds to rally more before we start the
real recovery trade," they said in a note. "We thus stay with a
portfolio of recessions trades -- long duration in global rates
and defensive exposures in credit and equity markets."
However, Nomura's Darby said corporate bonds are already
cheap, given how much they have sold off this year. For the
time being, bond investors are not as worried about high
returns as they are about staying safe, he said.
The yen was up slightly at 90.98 per dollar <JPY=>, having
rallied to its strongest in 13 years on Friday at 88.10 after
the U.S. auto bailout initially flopped.
The euro rose to highs around $1.3490 <EUR=> on electronic
platform EBS, the highest in almost two months.
The rally in stocks sucked money out of the bond market,
pushing up the yield on the benchmark 10-year U.S. Treasury
note <US10YT=RR>, which moves in the opposite direction of the
price, to 2.59 percent from 2.58 percent late in New York on
Friday.
(Editing by Lincoln Feast)
