* Stocks surge aided by China comments
* Euro slips as rally from near 4-yr lows lacks conviction
* Aussie, NZ dollars cling on to gains after mammoth rally
By Umesh Desai
HONG KONG, May 28 (Reuters) - Asian stocks rallied for a
third straight day on Friday as China's pledge to remain
invested in Europe lifted sentiment but the euro surrendered
some of its gains after rebounding from near four-year lows the
previous day.
Higher yielding currencies like the Australian and New
Zealand dollars surged on demand for riskier assets and the
Japanese yen, which benefits from risk aversion, lost ground,
boosting exporter shares in Tokyo.
Japan's benchmark Nikkei <>, rebounding from a
six-month low on Thursday, rose over 1.7 percent to its highest
this week while the recovery in commodities support a rally in
the Australian stock market.
"The phase of sharp erosion in sentiment may now be behind
us, though unstable stock moves will likely continue for a
while," said Tsuyoshi Segawa, an equity strategist at Mizuho
Securities in Tokyo, adding seasonal position unwinding in May
by hedge funds would add to the volatility.
The MSCI index of Asia Pacific stocks outside Japan rose
1.9 percent <.MIAPJ0000PUS> adding to the previous day's 2.2
percent gains. It is on track for its biggest weekly percentage
gain since early March.
The Korea Composite Stock Price Index <> (KOSPI)
climbed 0.7 percent as foreigners turned net buyers of stocks
after a nine-session selling streak, which was the longest
since March 2009.
The People's Bank of China said on Thursday a Financial
Times report that Beijing was concerned about its euro-zone
bond holdings due to the European debt crisis was groundless.
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The report had driven the euro to a near four-year low
against the dollar and near an 8-1/2-year low against the yen,
and soured risk appetite globally as investors worried that
Europe's debt woes would grow into a larger financial crisis.
Beijing's denial fuelled a rally on Wall Street, with the
benchmark S&P 500 marking the biggest percentage gain in nearly
three weeks.
In Asia, energy <.MIAPJEN00PUS> and financial services
<.MIAPJFN00PUS> sectors were the main outperformers while
defensive sectors like utilities <.MIAPJUT00PUS> were laggards.
The euro initially got a major lift from short-covering
following China's denial, but slipped back as worries about
Europe's debt problems returned to haunt investors who sold
into the single currency's strength.
In Asian trade, the euro <EUR=> was down 0.6 percent from
late New York at $1.2292 against the dollar and is down 0.5
percent against the yen at 112.02 yen <EURJPY=R>.
"In our view, uncertainty remains in Europe and the sources
of worries could resurface," said a note from Credit Agricole
CIB.
"It could come from the negative economic impact of the
fiscal adjustment or from the sometimes difficult coordination
between the Eurozone's members. There could also be market
talks coming back about the issue of government debt
restructuring."
The improved market sentiment supported the Australian
dollar <AUD=D4> and the New Zealand dollar <NZD=D4>, which held
on to Thursday's steep gains of 3.5 percent and 3.1 percent
against the dollar, respectively.
Metals were steady to marginally higher with copper hitting
a two-week high on the heels of the flight to riskier assets
while the jump in oil prices was additionally helped by
speculations about supply disruptions due to the Atlantic
hurricane season.
(Additional reporting by Aiko Hayashi in TOKYO; Editing by
Kazunori Takada)
