* Asia shares gain 1 pct on U.S. bank, global economy
relief
* MSCI regional index ex-Japan hits highest since early Oct
* Safe-haven yen retreats; euro backs down ahead of ECB
* Oil extends gains to near $57/barrel on broad risk
revival
(Updates with latest Asian prices, European pre-open)
By Rafael Nam
HONG KONG, May 7 (Reuters) - Asian shares extended their
rally on Thursday as encouraging signs about the health of U.S.
banks and the global economy bolstered riskier assets such as
oil and hurt safe-havens such as the yen.
European shares were set to gain for a seventh consecutive
session, with investors awaiting interest rate and policy
decisions from the European Central Bank and Bank of England
later in the day.
"The market now holds the view that the worst may be over,
at least for America. A very strong bull market appears to have
begun," said Fumiyuki Nakanishi, manager at SMBC Friend
Securities in Japan.
In Japan, the Nikkei average <> surged 4.6 percent to
its highest close in six months as traders returned after a
three-day holiday.
During that period, global stocks continued their rally,
with the MSCI regional index outside Japan <.MIAPJ0000PUS> now
at its highest since early October. Theindex has gained nearly
8 percent so far this week.
Nearly eight months after Lehman Brothers collapsed, leaked
stress test results for U.S. banks suggested they were
healthier than expected, even if some institutions such as Bank
of America <BAC.N> may have to raise a lot more money to shore
up their balance sheet in the face of credit losses.
[]
That came as a big relief for global investors ahead of the
release of formal results later in the day, helping spark gains
in Asian lenders such as Japan's Mizuho Financial Group
<8411.T>.
Investor confidence is also being reinforced by further
signs that the global economic slowdown may be close to turning
the corner.
A report on Wednesday showed U.S. private sector job losses
slowed much more than expected in April, while data showed
business activity in Europe staged its biggest one-month
increase since December 2001. []
Helping underpin the improved mood are steep cuts in
borrowing costs by central banks that have brought interest
rates to nearly zero in the United States, the UK and Japan, as
well as a host of unconventional policies adopted by some
governments and policymakers.
The European Central Bank is widely expected to cut
interest rates by a quarter percentage point to 1 percent later
on Thursday, though the focus is mainly on whether it will
follow other countries in adopting alternative measures.
[]
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> rose 1.1 percent as of 0600 GMT, though it
pared earlier stronger gains in the morning session.
The gauge has now advanced an astounding 50 percent since
its post-Lehman crisis low hit in early March, as investors
focus on the positive signs and disregard other signs showing a
recovery in the global economy and the financial system will
not be swift.
South Korea on Thursday warned against expecting the
economic recovery trend to continue, saying the upturn was
still weak and citing an uncertain global economy, but the
KOSPI <> index still advanced 0.6 percent.
On the positive side, data on Thursday showed Australian
employment jumped in April, in a major surprise that could calm
fears of recession. []
That sent Australian shares <> up 1.8 percent and the
country's currency <AUD=> to seven-month highs against the U.S.
dollar. Other stock indexes in the region, including in Hong
Kong <> and Singapore <.FTSTI> also advanced.
"Though we have been seeing good signs about the world
economy, it's still too soon to say it's improving. Basically,
we're at a stage where economic worsening has stopped," said
Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.
Among individual movers, Hitachi Ltd <6501.T> surged 7.3
percent after it more than tripled its operating profit
estimate for its last financial year, while Korea Exchange Bank
<004940.KS> soared 11.2 percent after a state-owned Korea
Development Bank expressed interest in acquiring the small
lender. [] and []
FAILURE NOT AN OPTION
More broadly, investors have been widely comforted by
official reassurances U.S. banks are holding up better than
expected following a test of 19 large banks, and by its pledge
that no big U.S. bank will be allowed to fail. []
That comfort is allowing investors to shift towards riskier
assets. U.S. crude futures <CLc1> rose 48 cents to $56.82 a
barrel, after already rising more than $2 on Wednesday on data
showing a surprise drop in U.S. gasoline inventories.
Expectations for a stronger global economy and a series of
output cuts by the Organization of Petroleum Exporting
Countries have also played a role in bringing crude prices up
since their lows of $33 this winter.
The improved risk appetite is hurting some assets seen as
havens in times of turmoil, such as the Japanese yen, which
retreated on Thursday.
The U.S. dollar rose 0.3 percent to 98.65 yen <JPY=> from
late U.S. trade on Wednesday.
Among other key currencies, the euro <EUR=> was down 0.2
percent to $1.3310 <EUR=>, after touching its highest in a
month at $1.3439 on trading platform EBS on Tuesday, ahead of
the ECB meeting later in the day.
Regional bonds also fell, victims of the stock market
rally. June 10-year Japanese government bond futures fell 0.16
point to 137.31 <2JGBv1> from its close last Friday.
(Additional reporting by Aiko Hayashi and Elaine Lies in
TOKYO; Editing by Kim Coghill)
