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OCTOBER 8, 2010, 5:29 A.M. ET
China Jumps on Down Day


Chinese stocks delivered their best percentage gain in more than four months to tower over mostly lower Asian markets Friday, as several resource shares jumped by the 10% daily limit in response to a recent rally in commodities as trading resumed after the week-long Golden Week holiday.

News that Moody’s Investors Service is reviewing China’s government bond rating for a possible upgrade boosted sentiment and also helped Hong Kong stocks finish higher, in addition to helping Australian shares pare early losses. Still, overall trading in the region reflected caution ahead of the key U.S. jobs report due later in the global day.

“The bigger picture continues to be dominated by caution and profit-taking ahead of tonight’s key nonfarm payrolls release. … Tonight’s release has bigger implications than usual. It should help settle any conjecture over both the necessity and size of any expanded quantitative easing program,” said IG Markets’ market strategist Ben Potter.

In a statement, Moody’s cited “the resilient performance of the Chinese economy following the onset of the global financial crisis, and expectations of continued strong growth over the medium term.”

Japan’s Nikkei Stock Average fell 1% to 9,588.88, Australia’s S&P/ASX 200 dropped 0.2%, South Korea’s Kospi shed 0.2%, Taiwan’s Taiex gave up 0.5% and Hong Kong’s Hang Seng Index tacked on 0.3%. In afternoon trading, India’s Sensex fell 0.5% and Singapore’s Straits Times Index gave up 0.3%. Dow Jones Industrial Average futures were down 18 points in screen trade.

China’s Shanghai Composite added 3.1% for its biggest percentage gain since May 24, while the Shenzhen Composite index advanced 2.8%. Metal and coal producers jumped off the blocks on mainland bourses, helping overcome the early weakness displayed by property developers in the wake of further tightening measures introduced by the Shanghai municipal government Thursday. The measures limit households to one new home purchase each and raise the land appreciation tax on property developers.

“The Moody’s move suggests global markets turn increasingly positive about China’s medium-term fundamentals, so it’s a big positive for commodities and related currencies,” BofA Merrill Lynch China economist Ting Lu wrote in emailed comments. “This move will be positive for Chinese corporates, especially banks, as their ratings will be raised accordingly,” Lu added.

Jiangxi Copper Co. and Yanzhou Coal Mining Co. jumped by the day’s 10% permissible limit in Shanghai, while Yunnan Copper Co. and Tongling Nonferrous Metals Group Co. did the same in Shenzhen.

Shares of Zijin Mining Group surged 12.4% in Hong Kong as trading resumed after the company disclosed a smaller-than-expected fine over a toxic chemical leak at one of its copper plants in early July. Zijin has been suspended since Monday before an announcement on the government fines was published. The stock rose 10% in Shanghai.

Mainland property developers underperformed the broad markets in China and fell in Hong Kong on news of the Shanghai’s housing-market tightening. Shimao Property Holdings gave up 1.7% and China Overseas Land & Investment dropped 0.5% in Hong Kong. China Vanke Co. rose 0.5% in Shenzhen, while Gemdale Corp. rose 0.9% in Shanghai.

Chinese wind-turbine maker Xinjiang Goldwind Science & Technology rose on its debut in Hong Kong, finishing at 19.06 Hong Kong dollars ($2.44), compared with its initial public offering price of HK$17.98.

“The industry outlook is strong, but I think some investors are trying to reserve more funds for upcoming IPOs such as AIA [Group Inc.]’s listing [expected Oct. 29],” said Prudential associate director Alvin Cheung.

In Tokyo, the strong yen continued to weigh on the market. Investors were also reluctant to take large positions ahead of the long weekend. Japan will be closed for a national holiday Monday.

Exporters remained under selling pressure, with Toshiba Corp. falling 2.1% and Toyota Motor Corp. dropping 2%. Panasonic Corp. jumped 3.4% on news it had withdrawn a shelf registration to issue up to 500 billion yen ($6.1 billion) in new shares.

Seven & I Holdings lost 3.7% following the retailer’s disappointing earnings and forecasts released on Thursday.

In Sydney, shares of BHP Billiton ended 0.1% higher and Rio Tinto ended little changed, overcoming early weakness after the Moody’s report on China.

Shinhan Financial Group dropped 1.8% in Seoul after the Seoul Economic Daily reported that the country’s financial watchdog planned to impose heavy disciplinary measures on the chairman and several executives for violating financial transaction regulations. The penalty was expected to deal another blow to the company, which last month suspended President Shin Sang-hoon over allegations of breach of duty and embezzlement.

Among other markets, New Zealand’s NZX 50 fell 0.1% and Philippine stocks gave up 0.2%. By late afternoon, Indonesian shares declined 1.2% and Thailand’s SET Index gave up 0.7%.

Investors viewed Moody’s review of China’s A1 bond rating for possible upgrade as a positive sign for the global economic recovery, said Yuichiro Harada, senior dealer at Mizuho Corporate Bank, adding that the U.S. nonfarm payroll data will restrain trading in riskier assets.

“Looking ahead, the coming few days are jam-packed with event risk,” said Mike Jones, currency strategist at the Bank of New Zealand. “Given the importance of the labor market to the U.S. economic outlook, the [U.S. jobs] data could have clear implications for whether the Fed is required to undertake additional monetary easing, and hence sentiment towards the U.S. dollar,” Jones said.

The dollar was fetching 82.33 yen, from 82.40 yen late in New York on Thursday. The euro was at $1.3907 from $1.3912 and at 114.50 yen from 114.65 yen.

Finance ministers from the Group of Seven countries are also preparing to meet in Washington later, and traders expect some discussion on currency markets following recent sharp falls in the dollar and intervention by several countries to weaken their currencies.

“The global forex conundrum is morphing into a trade dilemma of sorts. Investors need to stay bullish and hedged, in our opinion,” said Richard Hastings, macro and consumer strategist at Global Hunter Securities.

Japanese government bond futures advanced, with lead December futures up 0.10 at 143.95 points and the 10-year JGB yield adding 0.5 basis point to 0.870%.

Spot gold was at $1,343.90 per troy ounce, down $5.20 from Thursday’s New York close. November Nymex crude-oil futures were down 68 cents at $80.99 per barrel on Globex.


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