Global shares hit 20-month high as Japan promises open-ended easing

LONDON (Reuters) - World shares hit a new 20-month high on Tuesday after Japan launched it boldest attempt yet to lift its stagnant economy, though the gains were cropped by a flare-up of concerns about Germany's banks.

The Bank of Japan, which has been under intense political pressure to overcome deflation and generate growth, hiked its inflation target to 2 percent and said that from 2014 it would adopt an open-ended commitment to buy assets.

The move surprised markets, which had expected another incremental increase in its 101 trillion yen ($1.12 trillion) asset-buying and lending program, though the delay before the easing measures kick in dulled the impact and saw the yen edge higher against the dollar.

European shares, which have been testing two-year highs in recent days, experienced a turbulent morning as markets latched on to a report that German regulators were simulating a separation of some banks' operations, and on rumors - later denied - that Deutsche Bank was preparing a profit warning.

Frankfurt's DAX <.gdaxi> fell as much as 1.4 percent on the talk but had clawed back more than half of the losses ahead of the Wall Street open, while the pan-European FTSEurofirst 300 <.fteu3> was down 0.2 percent on the day at 1,164.

This is a busy week for U.S. earnings, with Google Inc , Johnson & Johnson , Travelers Cos and Texas Instruments all on tap to report Tuesday. Tech earnings will be a particular focus after a disappointing sales outlook from Intel Corp last week.

A better-than-expected reading from the German ZEW investor sentiment index helped the recovery in European shares. It rose sharply for a second consecutive month in January in a sign that the euro zone crisis is no longer hitting Europe's largest economy as hard as in late 2012.

"There was a slight scare in Germany this morning which we saw particularly in the euro/dollar move but we have more or less recovered from that now," said Rabobank strategist Philip Marey.

"The market is now looking to the U.S. open and today's data. The Richmond Fed index could underline the uncertainty businesses are facing not only from abroad but also from Capitol Hill (budget negotiations). But hopefully the homes sales data will be the more positive story."

Equity markets, particularly in Japan, had risen strongly in the run-up to Tuesday's BOJ meeting, and the confirmation of the central bank's plans was enough to lift the MSCI world index <.miwd00000pus> 0.15 percent to a fresh 20-month high of 352.54 before momentum waned.

Brent crude rose 0.3 percent to $112.16 a barrel, and gold was up 0.2 percent as the BOJ's easing action added to recent positive data from the United States and China, while growing confidence in the strength of China's economic recovery pushed copper up 0.5 percent to $8,100 a tonne.

SPAIN GAINS

General market sentiment was also supported by signs of a compromise to avert a U.S. fiscal crisis.

Republican leaders in the U.S. House of Representatives have scheduled a vote on Wednesday on a nearly four-month extension of U.S. borrowing capacity, aimed at avoiding a fight over the looming need to raise the federal debt ceiling.

Bond market investors also gobbled up a new 10-year Spanish bond, its first since November 2011, as the latest evidence of its rising confidence following the European Central Bank's promise to buy Spain's bonds if necessary.

Last week, Rome sold 6 billion euros of its first 15-year bond in more than two years, and Spain's Economy Minister Luis de Guindos said Tuesday's sale by his country drew estimated demand of around 24 billion euros, describing the sum as unprecedented.

A government source close to the deal said Madrid would, however, sell no more than 7 billion euros so as to leave appetite in the market.

"I'm under the impression that the (Spanish) Treasury is making the most of a benign market to increase its liquidity for whatever comes in the future," said Estefania Ponte, economist at Cortal Consors.

GOOD DAY AT THE ZEW

The upbeat German ZEW release, which put German investor and analyst morale at a 2-1/2 year high, prompted a fall in German government bonds and lifted the euro out of slide caused by the German bank jitters.

The single currency remained down 1 percent on the day against the yen at 118.3 yen, however, as disappointment that there will be no immediate BOJ easing saw the yen strengthen across the board.

The dollar also fell 1 percent against the yen to a session low of 88.365 yen.

"There was some disappointment in markets that the BOJ would start their open-ended bond purchases only in January 2014, so we see some profit taking in dollar/yen," said Bernd Berg, global FX strategist at Credit Suisse.

In Britain, sterling fell for the fifth straight day to hit an 11-month low against the euro, weighed down by a bleak outlook for the economy and public borrowing figures that reinforced fears it could lose its prized triple-A rating.

(Additional reporting by Anooja Debnath; Editing by Will Waterman)

Source: http://news.yahoo.com/yen-asian-shares-mark-time-boj-decision-002541807--finance.html

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