ASIA MARKETS: Asia Stocks: Japan Rallies With China Closed

By Laura He and Michael Kitchen, MarketWatch

HONG KONG (MarketWatch) -- Asian stocks ended Monday's session broadly higher, with Japan regaining momentum after a record Wall Street close on Friday and upbeat Chinese manufacturing data over the weekend. Meanwhile, Chinese markets were closed for a holiday.

Both the S&P 500 (SPX) and the Dow Jones Industrial Average (DJI)closed at record levels on Friday, gaining 0.2% and 0.1% respectively. On Sunday, data from China's National Bureau of Statistics showed that Chinese factory activity expanded faster than expected in May, rising to 50.8 from 50.4 in April.

Boosted by the U.S. gains and Chinese data, Japan's Nikkei 225 staged another rally on Monday, ending up 2.1%. The index has increased in 7 of the past 8 sessions, with Friday providing a small setback with a 0.3% loss. The broader Topix index also finished 1.6% higher.

Australia's S&P/ASX 200 settled 0.5% higher, and South Korea's Kospi index closed up 0.4%.

Meantime, markets in Hong Kong, mainland China, New Zealand, and Taiwan were closed due to public holidays.

In Japan, the dollar strengthened against the yen (USDJPY) on improved investors' risk appetite, buying Yen102.041 from Yen101.800 on Friday's close. Tech exporters were aided by the weaker yen, as Hitachi Ltd. jumped 3.5%, Olympus Corp. climbed 2.8%, and both Panasonic Corp. and Renesas Electronics Corp. gained 2.7%. However, Dai-Ichi Life Insurance , one of Japan's largest life insurers, tumbled 5%, after news reports said the company is in talks for an acquisition of U.S. peer Protective Life for $4.9 billion.

In Australia, the Aussie dollar (AUDUSD) dropped to 92.54 U.S. cents from 93.09 U.S. cents in the prior session.

Financial stocks were stronger, as National Australia Bank Ltd. advanced 1.2%, Commonwealth Bank of Australia rose 0.8%, and Australia and New Zealand Banking Group Ltd. added 0.7%. Miners were mixed, with Alumina Ltd. gaining 2.5%, while BHP Billiton Ltd. (BHP) lost 1.1%.

China over the weekend: Good data, more easing

Chinese markets, both on the mainland and in Hong Kong, were closed for the Dragon Boat Festival, but investors will have plenty to chew over when trading reopens after some strong manufacturing data and plans to ease the reserve requirements for some banks.

First a bit more analysis on the data: The government version of China's manufacturing Purchasing Managers' Index, released Sunday, showed stronger-than-expected growth in activity.

"The upside surprise was led by the new-orders index, which rose to a six-month high, reflecting the government's continued effort since mid-March to boost investment and construction activities," wrote analysts at Barclays, though they added that "the recovery remains at its early stage and is not broad based."

Bank of America-Merrill Lynch took a similar view that the numbers were modestly positive, although they cited a pre-data consensus of 50.7, making the result slightly less of a surprise.

"Markets will respond positively to the improved PMI reading, even it's pretty much expected," they wrote, reiterating their GDP growth forecast for the current quarter at 7.5%, up from 7.4% in January-March.

When the markets reopen on Tuesday, we will also get a look at the final reading for HSBC's version of the China manufacturing PMI, with a previously released preliminary edition printing at 49.7, up from 48.1 in April.

And then the policy moves: Late Friday, the State Council (China's cabinet) said it would, among other things, (1) reduce some of the corporate-tax burden and public fees paid by corporations, and (2) ease credit access for small business and reduce the required reserve requirements for certain lenders.

Reacting to the announcements, J.P. Morgan said the tax moves are a step "in the right direction, as weak corporate profit is a critical issue, and also affects income growth (and hence stable consumption growth)."

However, it sees the monetary and credit-easing plans as modest and representing "fine-tuning" rather than a major policy shift.

"This is consistent with our view that monetary policy will not be eased substantially," the J.P. Morgan analysts wrote. "The two most important indicators for monetary policy stance are policy rates and credit growth, which we expect to remain unchanged for the rest of the year."

(Some material in this report is from MarketWatch's Asia Stocks blog.)

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