* 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 3.2 pct at 5-week high
* Bigger 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 after China let the
yuan rise to the highest since July 2005, with more currency
flexibility easing tensions with the West and encouraging
investors to snap up riskier assets.
European stock futures <STXEc1> were up as 2.2 percent and
U.S. stock futures <SPc1> were near highs for the day, with
China's shift increasing investors' confidence in the global
recovery.
The yuan <CNY=CFXS> in the spot market climbed as high as
6.8015 against the dollar, or up 0.38 percent, its strongest
level since being revalued nearly five years ago, after China's
central bank signalled at the weekend that it was unshackling
the currency from its 23-month-old de facto 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. []
"China's commitment to allowing more yuan flexibility is
definitely an encouraging factor for stability in the market,"
said Hideki Amikura, deputy general manager of foreign exchange
at Nomura Trust Bank in Tokyo.
"It is a sign that China is ready to act responsibly to fix
global imbalances and avoid potential international conflicts."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
YUAN POLICY CHANGE
Full coverage []
Analysis []
Graphic http://r.reuters.com/sut87k
New Tone, Same Old Yuan http://link.reuters.com/cad92m
Deferring need for rate rise http://link.reuters.com/wyc92m
Correlations with the yuan http://r.reuters.com/cew92m
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Oil, metals and other commodity prices rose on hopes for
strong demand from China, 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 role in the economic recovery, offsetting worries about
Europe's sovereign debt crisis.
MADE IN CHINA
Japan's Nikkei share average <> jumped 2.4 percent to
a one-month closing high, with China-linked stocks performing
particularly well. Shares of Hitachi Construction <6305.T> and
Komatsu <6301.T> rose 6.7 percent and 4.6 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 3.2 percent, led by the materials,
energy and industrial sectors. The index was set for the
biggest single-day gain since May 10, when global markets
reacted to a $1 trillion euro zone rescue plan.
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 2.3 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 2.8 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.
STRONG ASIAN CURRENCIES
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 2.4 percent against the Korean won
<KRW=> and was close to the biggest single-day decline in 13
months. The dollar was also down 1.8 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 $1.2450 <EUR=> and the Australian dollar
was at US$0.8822 <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 7 basis points from late Friday in New York
to 3.29 percent <US10YT=RR>.
Commodities prices rallied as well on expectations that
China's demand for raw materials would only increase.
Brent crude futures were up 2 percent to $79.78 a barrel
<LCOc1> and U.S. crude was up 2.1 percent to $78.83 a barrel
<CLc1>, at the highest in six weeks.
Three-month copper on the London Metal Exchange <CMCU3>
rose 4 percent to $6,700.
U.S. soybeans and grains futures also rose. []
(Additional reporting by Elaine Lies in TOKYO and Kei Okamura
in HONG KONG; Editing by Jan Dahinten)
