* Cyclical sectors outperform; focus on ECB meeting
* Big question is whether ECB will buy more euro zone bonds
* No action from the ECB likely to punish the euro, risky
assets
* Goldman says go long Japan's Nikkei in 2011
(Updates with European opening)
By Kevin Plumberg
HONG KONG, Dec 2 (Reuters) - Japan's Nikkei share average
hit a five-month high and the euro stayed within sight of
overnight highs on Thursday ahead of a European Central Bank
meeting that investors speculate could bring new steps to
contain the euro zone's fiscal crisis.
Major European stock markets also rose, with the
FTSEurofirst 300 opening up 0.4 percent and London's
FTSE 100 rising 0.6 percent . U.S. stock index futures
<SPc1> edged up 0.1 percent.
Gains in Europe and Asia followed Wall Street's 2 percent
rally on Wednesday led by companies most sensitive to economic
turning points and a U.S. Treasuries sell-off after reports
showed strength in labour and industrial sectors.
Markets remained nervous, however, as even after Ireland's
85 billion euro bailout investors have been losing confidence
that Portugal and Spain and perhaps others could escape a
similar fate. That led to expectations the ECB will announce
backstop measures to keep cash flowing in its financial
system, though it may disappoint investors by not being ready
to increase bond purchases just yet.
[][]
"The sovereign debt crisis has shown early signs of
transforming into a banking and liquidity crisis," Todd Elmer,
currency strategist with Citi in Singapore, said in a note.
"A breakdown in market function is likely to drive risk
reduction among investors, which should favor sharp dollar
strengthening vs euro.
"Such price action could eventually force a stronger
response from both fiscal and monetary authorities in Europe,
but expectations for imminent action are probably premature."
In a sign that investors were far from being swept away by
a tide of optimism, shares of Toyota Motor Corp
slipped 0.6 percent in active trade after the world's top car
maker reported its U.S. sales dropped 3 percent drop in
November compared with the 17 percent rise in U.S. auto
industry sales.
UPSIDE FOR JAPAN STOCKS?
The Nikkei rose 1.8 percent to the highest close
since June 22. Trading volume has been picking up as well,
with the 5-day moving average of total turnover holding above
the 20-day moving average for longer than a month.
As one of its top trade trades for next year, Goldman
Sachs recommended a bet that the Nikkei will rise 20 percent
from current levels in 2011 based on the view Japan will
continue to ease monetary policy next year even as other
central banks tighten.
Analysts at the bank also pointed out the index was
trading at 0.9 times book value despite their forecast for
corporate profits to reach 2007 highs.
The MSCI index of Asia Pacific stocks outside Japan was up
1.5 percent after hitting a two-month low on
Monday, with the materials and technology sectors
outperforming.
The euro traded at $1.3155 , little changed on the
day. The currency ended the New York session above its 200-day
moving average at $1.3122. In addition, Wednesday's highs and
closing level were both higher than the prior day -- usually a
signal of more gains ahead.
With so much hinging on the whims of policymakers though,
the risk of disappointment was high and therefore a resumption
of the euro decline a strong possibility.
"I'd think the euro is quite possibly going to return to
below $1.30," said Sean Callow, currency strategist at Westpac
Bank in Sydney.
The Australian dollar fought back from early losses at the
start of the European trading session to trade unchanged on
the day at $0.9680 , holding well above a base of
support in the $0.9530 area, the two-month low plumbed
overnight.
Anticipation of how European policy action, or inaction
would affect investor appetite for risk was having a mixed
impact on commodity prices.
U.S. crude for January delivery was steady at $86.76 a
barrel <CLc1> after having jumped 3.1 percent on Wednesday.
The next target for oil bulls is the Nov. 11 high of $88.63.
Three-month copper traded on the London Metal Exchange
climbed 1.4 percent after a 2.7 percent rise on Wednesday
. The metal is up 18 percent so far in 2010
(Additional reporting by Ian Chua in SYDNEY; Editing by
Tomasz Janowski)
