Asia stocks recover from 1-month low, eyes on Fed

By Eric Burroughs
HONG KONG (Reuters) - Asian stocks bounced up on Wednesday from a one-month low hit the previous day while the dollar drifted, with investors bracing for a Federal Reserve decision and any signs the central bank is worried about the jump in U.S. bond yields.
Futures on European shares .STXEc1 pointed to gains in early trade.
Taiwan's TAIEX index led the gains in Asia, jumping 2.95 percent on speculation that the country will sign an agreement with China that could spur investment in its financial industry.
The rise in stocks was limited across the continent before the outcome of the Fed meeting.
The U.S. central bank is widely expected to keep interest rates on hold at a record low and keep its planned debt purchases unchanged. So the focus is on whether it tweaks its statement to rein in a slide in U.S. Treasuries that has threatened the economy's budding recovery.
Benchmark Treasury yields surged to an eight-month peak above 4 percent earlier in the month, pushing up mortgage rates and offsetting the Fed's efforts to help the economy by buying hefty amounts of government and mortgage-related debt.
Investors have started to question how the Fed will step back from its array of emergency programs to stem the crisis and whether its quantitative easing will stoke inflation.
"The Fed will likely attempt to assure markets that it will have a credible exit strategy when the time is right," said analysts at Calyon in a note to clients.
The dollar found its footing after a sharp slide the previous day, the latest volatile move across markets in the last days of the second quarter.
Government bonds also have recovered on building doubts about the strength of any economic recovery. Japan's 10-year government bond yield hit a three-month low.
Market players are keeping a close eye on the results of a special one-year unlimited funding operation the European Central Bank is offering to banks, looking for signs of financial strain in the euro zone if demand is sizeable.
The MSCI index of Asia-Pacific shares outside Japan climbed 1.8 percent, steadying after hitting a one-month low the previous day.
Financials and technology shares led gains. Taiwan's Cathay Financial (2882.TW) was up 6.9 percent, while South Korea's LG Display (034220.KS) rose 2.7 percent.
Asian shares outperformed their U.S. counterparts after the S&P 500 .SPX edged up 0.2 percent on Tuesday.
Japan's Nikkei average .N225 climbed 0.4 percent, underpinned by a rise in energy shares such as Inpex (1605.T) after a jump in oil prices the previous day. Continued...
Source: Reuters