Asian shares soar after dovish Fed update

By Lisa Twaronite and Hideyuki Sano

TOKYO (Reuters) – Asian shares surged and the dollar skidded on Thursday after minutes of the U.S. Federal Reserve's latest policy meeting showed concerns about downside risks of a stronger dollar and the global economy.

European shares were expected to take their cues from the gains, with financial spreadbetters predicting Britain's FTSE 100 to open 67 to 70 points higher, or as much as 1.1 percent; Germany's DAX to rise 126 to 131 points, or as much as 1.5 percent; and France's CAC 40 to gain 60 to 62 points, or as much as 1.5 percent.

"We are calling the major bourses firmer as investors react to the rally through U.S. and Asian trade," IG market strategist Stan Shamu wrote in a note.

"Key markets such as the DAX have tested some significant support levels recently and it seems this rally has arrived just in time to relieve the stress," he said.

But gains could be tempered after data released on Thursday underscored weakness in Europe's largest economy. German exports slumped by 5.8 percent in August, their biggest fall since the height of the global financial crisis in January 2009.

MSCI's broadest index of Asia-Pacific shares outside Japan, which in the previous session, touched its lowest level since March, was up about 1.2 percent in late afternoon trade. But Japan's Nikkei share average skidded 0.8 percent as the dollar sank against Japan's currency.

"Fed officials have concerns on the impact of a strong dollar, which undermines the scenario held by some that Japanese shares will benefit from further strength in the dollar against the yen," said Masayuki Doshida, senior market analyst in Tokyofor Rakuten Securities.

The minutes of the Fed's Sept. 16-17 meeting showed officials are struggling with how to come to grips with the dual threats of a stronger dollar and a global slowdown as they seek an eventual exit from low interest rates.

"The overall tone of the minutes was that the Fed will manage its policy so as not to damage a fragile economy, paying attention to various downside risks," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities in Tokyo.

U.S. interest rate futures reacted to the minutes, with June 2015 eurodollar interest rate futures hitting a contract high as traders scaled back expectations that the Fed will raise rates by June.

The rate-sensitive two-year U.S. Treasury note yield hit a seven-week low of 0.444 percent. The 30-year bond yield dropped to a 17-month low of 3.039 percent.

On Wall Street, U.S. stocks soared, with major indexes posting their biggest one-day jumps of 2014, reversing falls earlier in the session to their lowest levels since August.

DOLLAR WILTS

In the currency market, where the dollar had gained sharply over the past three months on the perception that higher U.S. rates down the road will attract more funds, investors rushed out of dollar-buying positions.

"Last week it was a pretty clear-cut buy the dollar scenario," said Stephen Innes, senior trader for OANDA in Singapore, but this week "we're seeing a lot of two-way action".

The dollar's index against a basket of six major currencies slipped as low as 85.108, its lowest level in about two weeks, moving away from a four-year high of 86.746 hit on Friday. It last stood at 85.223, down about 0.1 percent.

As the dollar wilted, the euro recovered to a two-week high of $1.2760, despite a run of weak German data earlier this week capped off by the latest figures. The euro last stood at $1.2737, up slightly on the day.

Against the yen, the U.S. currency traded at 107.85 yen, down about 0.2 percent on the day and not far from a three-week low of 107.75 yen touched on Wednesday.

The British pound stood at $1.6165, steady on the day and holding above an 11-month low of $1.5943 on Monday, ahead of the Bank of England's policy announcement later in the session. The bank is expected to keep rates steady near record lows.

In commodities trading, U.S. crude oil prices rebounded from a 1-1/2-year low hit overnight, adding about 0.2 percent to $87.60 per barrel, while Brent crude, the European benchmark, rose off Wednesday's two-year low to gain 0.2 percent on the day to $91.57. A weaker dollar makes dollar-denominated assets cheaper for holders of other currencies

Gold climbed to its highest in about two weeks as the dollar lost ground, with spot gold rising about 0.4 percent to $1,226.40 an ounce.

(Additional reporting by Thomas Wilson in Tokyo and Masayuki Kitano in Singapore; Editing by Richard Borsuk and Jacqueline Wong)