* Stocks, commodities up as China pledges more flexible yuan
* Yuan climbs to highest since Sept 2008 in spot market
* MSCI Asia ex-Japan stocks index up 2.9 pct at 5-week high
* Greater China buying power is dominant theme
* US Treasury yields climb as investors leave havens
By Kevin Plumberg
HONG KONG, June 21 (Reuters) - Stocks and commodities
jumped on Monday and U.S. Treasuries fell as investors bet
China will allow the yuan to rise after promising more currency
flexibility, easing political tensions with the West and
encouraging investors to snap up riskier assets.
The spot yuan rate <CNY=CFXS> edged up to 6.8110 against
the dollar, its strongest level since September 2008, after
China's central bank signalled at the weekend that it was
unshackling the currency from its de facto 23-month-old peg.
Many analysts see the currency strengthening further in
coming days, albeit at a very modest pace, with greater
purchasing power of the world's third-largest economy becoming
a strong global investment theme. []
"This provides a positive psychological boost to Asian
financial markets, so not just Asian equity markets but also
Asian currencies and bond markets as well," Khiem Do, head of
Asian multi asset at Baring Asset Management in Hong Kong, told
Reuters Insider television.
Do's exposure to China was domestically focused, with bets
on property and infrastructure stocks. He also was bullish on
Chinese companies with U.S. dollar-denominated debt.
Oil, metals and other commodity prices rose on hopes
China's increased purchasing power will boost demand, and
currencies from economies that have a large share of exports to
China -- Australia, Taiwan, South Korea, Brazil -- were
expected to keep strengthening.
China's central bank said late on Saturday it was ready to
make the yuan more flexible, citing a global economic recovery
and more balanced external trade.
On Sunday Beijing ruled out a one-off move, saying there
was no basis for any big appreciation and that it will keep the
exchange rate at a basically stable level. []
Nevertheless, the apparent policy change triggered a rally
in riskier assets, with investors growing more confident about
China's key role in the global economic recovery, offsetting
worries about Europe's festering sovereign debt crisis.
Japan's Nikkei share average <> jumped 2.4 percent to
a one-month high, with China-linked stocks performing
particularly well. Shares of Hitachi Construction <6305.T> and
Komatsu <6301.T> rose 6.6 percent and 4.7 percent,
respectively.
Both companies assemble and sell their products in China.
The rise in the Nikkei was welcome news after government
data showed foreign investors had sold $10 billion of Japanese
stocks two weeks ago, the largest weekly outflow since March
2008.
"We may well be able to say that the heavy foreign selling
of two weeks ago has now come to an end," said Nagayuki
Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley
Securities in Tokyo.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> surged nearly 3 percent, led by the materials,
energy and industrial sectors.
The MSCI index has already retraced more than half the
losses incurred in the past two months resulting from concerns
about Europe's debt crisis, though is still down 3.2 percent
this year.
Hong Kong's stock market <>, the gateway to China for
most global equity investors, rose 2.8 percent while the
Shanghai composite index <> gained 2.1 percent.
Chinese airline stocks were a big target, with China
Southern Airlines <1055.HK> gaining 8 percent, on hopes that a
stronger yuan will help reduce fuel costs.
Initial gains slipped at one point after China's central
bank left the yuan's daily mid-point unchanged from Friday, but
upward momentum recovered as the currency rose in the spot
market.
U.S. stock futures <SPc1> rose 1.2 percent, pointing to a
stronger open on Wall Street later in the day.
GATEWAY TO CHINA
Emerging Asian currencies also rose sharply.
Reasons for strength were two-fold: Asian reserve managers
would not have to curb their own currency strength as much for
competitive reasons if China lets the yuan rise, and hopes for
more exports to China.
The U.S. dollar dropped 2.5 percent against the Korean won
<KRW=> and was on pace for the biggest single-day decline in 13
months. The dollar was also down 1.6 percent against the
Malaysian ringgit <MYR=>.
"It's going to be a softly-softly approach in our view (for
yuan appreciation). It is good for risk appetite, it is good
for Asian currencies in general," said Mitul Kotecha, head of
global foreign exchange strategy with Credit Agricole CIB in
Hong Kong.
The euro and Australian dollar were steady on the day,
having surrendered early gains after China left the daily
mid-point of the yuan's exchange rate unchanged from Friday.
The euro was at $1.2430 <EUR=> and the Australian dollar
was at US$0.8812 <AUD=>.
U.S. Treasuries fell as cash was moved to riskier plays
offering potentially higher returns. The benchmark yield on the
10-year note was up 6 basis points from late Friday in New York
to 3.28 percent <US10YT=RR>.
Commodities prices rallied as well on expectations that
China's already voracious demand for raw materials would only
increase.
Brent crude futures were up 1.7 percent to $79.52 a barrel
<LCOc1> and U.S. crude was up 1.9 percent to $78.67 a barrel
<CLc1>, at the highest in six weeks.
Three-month copper on the London Metal Exchange <CMCU3>
rose 1.3 percent or $81 a tonne to $6,516.
U.S. soybeans and grains futures also rose. []
(Additional reporting by Elaine Lies in TOKYO and Kei Okamura
in HONG KONG)
