* Asia stocks hit 7-mth high but gains are modest
* About 10 of 19 stress tested U.S. banks need
capital-source
* Fed's Lacker says U.S. recession to end in 2009
* Australia central bank expected to keep rates on hold
By Kevin Plumberg
HONG KONG, May 5 (Reuters) - The U.S. dollar edged up from
a six-week low on Tuesday after news the U.S. Treasury will
instruct about 10 banks to raise more capital injected caution
into markets and capped gains in Asian stocks.
U.S. stock futures were down 0.3 percent <SPc1> after a
source familiar with a series of stress tests on 19 U.S. banks
told Reuters that about 10 lack an adequate cushion of capital
needed to guard against further economic decline.
[]
Official test results were expected on Thursday.
Investors would likely remain skittish until then, but
improving U.S. and emerging market economic data, particularly
in Asia, have encouraged investors to take risks and fuelled a
torrid Asian equities rally that has lasted two months so far.
Ivan Leung, chief investment strategist with JPMorgan
Private Bank Asia in Hong Kong, said he did not see the stress
tests as a major obstacle to this trend.
"If you are going to put some money to use on the next
pullback, it definitely has to be Asia ex Japan," he said.
The MSCI index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> edged up to a fresh seven-month high, up 0.6
percent on the day. The index hit an intraday low on March 9
and has since gained about 45 percent.
China's speedy recovery compared with other major economies
remained the top draw for foreign investors, who have poured
cash into the region since March.
Taiwan's main TAIEX index was up 1.3 percent <>,
benefitting from closer investment ties between China and the
island economy. Taiwan has been a big recipient of foreign
portfolio flows, chasing growth in China.
Hong Kong's Hang Seng index <> rose 0.6 percent, led by
a 1 percent gain in HSBC <0005.HK>.
Markets in Japan and South Korea were closed for holidays.
In currency markets, dealers took a break from buying
commodity-related currencies and bought back some U.S. dollars
after the news on U.S. bank stress tests.
The Intercontinental Exchange's U.S. dollar index <.DXY>,
which measures its value against a basket of six other major
currencies, was up 0.1 percent, after touching the lowest since
March 26 on Monday.
Against the yen, which has often gained in times of market
uncertainty, the dollar fell 0.2 percent to 98.70 yen <JPY=>.
The Australian dollar <AUD=> was little changed at $0.7405
ahead of a Reserve Bank of Australia policy decision due later
in the day. The Australian dollar has risen in tandem with
global equity markets, up some 14 percent in the last two
months.
Mitul Kotecha, head of global currency strategy with Calyon
in Hong Kong, said the central bank's decision would unlikely
end the Australian dollar's uptrend.
"Although we look for rates to be cut further over coming
months, the RBA is likely to continue to assess the impact of
the massive monetary and fiscal stimulus already undertaken
before determining whether to move again," he said in a note.
U.S. crude for June delivery was down 0.4 percent to $54.23
<CLc1> a barrel after settling at the highest since November 24
on Monday.
Oil has been gaining steadily since mid-February on
expectations economic recovery is in sight for the world's
biggest energy consumers. Richmond Federal Reserve President
Jeffrey Lacker reinforced such views when he said overnight the
U.S. recession would probably end later this year.
[]
(Editing by Tomasz Janowski)
