ASIA MARKETS: Australia, Japan Stocks Rally; China Slips

By V. Phani Kumar, MarketWatch

HONG KONG (MarketWatch) -- Japanese and Australian stocks rose Tuesday after upbeat manufacturing reports from the U.S. and the euro zone, while Hong Kong shares retreated on weakened activity at Chinese factories.

Australia's S&P/ASX 200 rose 2.3%, extending gains after the central bank held rates steady. Japan's Nikkei Stock Average climbed 1%, and Singapore's Straits Times Index added 0.9%.

Their gains came as stocks on Wall Street ended higher after the Institute for Supply Management reported an increase in its manufacturing index, and the euro-zone's Purchasing Managers' Index (PMI) for June climbed to a 16-month high.

"These are good signs for the world's two largest-consuming regions. The fact Europe looks like normalizing and could emerge from what is a record-long recession for the region will be a massive benefit the global economy," said IG Markets strategist Evan Lucas.

The U.S. and euro-zone manufacturing reports follow the Bank of Japan's quarterly tankan survey Monday, showing a sharp improvement in confidence at large Japanese businesses, although two separate PMI surveys on China maintained their downtrend.

Meanwhile, Hong Kong's Hang Seng Index fell 0.3%, and South Korea's Kospi slipped 0.2%, while the Shanghai Composite gave up 0.4%.

Banks and property developers declined in Hong Kong after the China PMI releases, with China Construction Bank Corp. (CICHY) losing 3.3%, and China Overseas Land & Investment Ltd. (CAOVY) sliding 2%.

PMI data from Taiwan and South Korea also indicated a further deterioration in their respective manufacturing sectors on Monday.

"The June PMIs for emerging Asia suggest the region's manufacturing sectors continue to struggle. ... We think fragile global demand will make life difficult for Asia's manufacturers, at least until the end of the year," said Kyrstal Tan, Asia economist at Capital Economics.

An overnight increase in prices of gold, copper and crude-oil aided shares of commodity producers around the region.

Gold miner Newcrest Mining Ltd. (NCMGY) jumped 5.9%, and energy producer Santos Ltd. (SSLTY) gained 4.9% in Sydney, while Sumitomo Metal Mining Co. (5713.TO) soared 3.8% in Tokyo.

In Hong Kong, shares of PetroChina Co. (PTR) leapt 5.6%, getting an extra lift from news that China's economic planning agency has raised the government-set wholesale prices of natural gas by about 15%.

Australian financial rose after Monday's losses, extending gains after the Reserve Bank of Australia left rates unchanged Tuesday as most economists expected.

Commonwealth Bank of Australia (CBAUY) and Australia & New Zealand Banking Group (ANZBY) gained 1.5% each, though still underperforming the broader market. But insurers did even better, with Insurance Australia Group Ltd. (IAUGF) up 4.2% and QBE Insurance Group Ltd. (QBIEY) rising 3.1%.

Several Japanese exporters were also spurred as the U.S. dollar (USDJPY) stuck close to the 100-yen level amid expectations the greenback may soon return above the psychologically important level.

"Based on the direction of monetary policy, we feel that [the dollar's rate against the yen] should revisit its highs," said BK Asset Management managing director Kathy Lien.

"If U.S. [Treasury] yields continue to rise, Japanese companies will start to reduce their hedges as the cost to maintain these positions rise, which is another factor that could drive [the dollar] back to its 2013 high" against the yen, she said.

Shares of Hitachi Ltd. (HTHIY) rose 4.9%, Canon Inc. (CAJ) added 3.1%, and Subaru-maker Fuji Heavy Industries Ltd. (FUJHY) rose 1.6%.

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