ASIA MARKETS: Japan Stocks Soar To Lead Rally In Asia

By V. Phani Kumar, MarketWatch

HONG KONG (MarketWatch) -- Asian stocks rallied Friday, cheering a rebound on Wall Street and upbeat German manufacturing data, with Japanese shares leading the charge on the back of a weakened yen.

Australia's S&P/ASX 200 gained 1%, South Korea's Kospi added 1.3%, Hong Kong's Hang Seng Index rose 0.6%, and China's Shanghai Composite advanced 0.3%.

Japan's Nikkei Stock Average was the region's strongest performer, jumping 2.4% as the U.S. dollar (USDJPY) climbed toward the Yen99-level and after a Reuters survey showed local manufacturers' optimism rose to the highest level in three years.

The performance helped the Nikkei Average, the Shanghai Composite and the S&P/ASX 200 all erase losses they had accumulated earlier in the week.

Global equity markets were rocked recently due to uncertainty surrounding the Federal Reserve's bond-purchase program, with emerging markets in particular hit by worries that reduced stimulus from the U.S. central bank would spur foreign fund outflows from the region.

ING Financial Markets economist Tim Condon said a tapering of the $85 billion-a-month in Fed stimulus could result in a rapid repricing of U.S. Treasury yields, lifting the 10-year yield (10_YEAR) by about 1.50 percentage point in about two quarters.

However, "once it's over, the economic fundamentals ... will reassert themselves as the drivers of financial-asset prices. We're not there yet, and contagion could still cause a balance-of-payments crisis in an emerging market with a too-large current-account deficit," Condon said.

Stock gains in Tokyo were spread across sectors, with Yamaha Motor Co. (7272.TO) climbing 4.9%, Citizen Holdings Co. gaining 3.4%, Kawasaki Heavy Industries Ltd. (KWHIF) adding 4.9%, Sumitomo Metal Mining Co. advancing 4.3% and banking giant Mitsubishi UFJ Financial Group Inc. (MTU) rising 2.9%.

Mitsubishi Motors Corp. (MMTOY) advanced 3.4% after the Nikkei newspaper reported it planned to build an automobile plant in the Philippines by around 2015.

The advances also followed a higher finish for the Dow Jones Industrial Average (DJI), which snapped a six-day losing streak overnight after a monthly average of jobless claims fell to a more than five-year low in the U.S., and as manufacturing Purchasing Managers' Index readings from China and Germany indicated expansion.

"The fact that the U.S. and European recoveries are improving (albeit fractionally) is a good foundation for global markets, but investors firstly have to get through the removal of the price distortions that quantitative easing created," said Perpetual investment market-research chief Matthew Sherwood.

In Sydney, mining major Rio Tinto Ltd. (RIO) rose 1.1%, while Fortescue Metals Group Ltd. (FSUMY) jumped 3.5%, extending its post-earnings advance from Thursday.

A more-than-1% climb for Nymex crude futures overnight aided the region's energy producers. Woodside Petroleum Ltd. (WOPEY) gained 1.4% in Sydney, Inpex Corp. (IPXHF) climbed 2.1% in Tokyo, and PetroChina Co. (PTR) added 0.4% in Shanghai.

Meanwhile, gains in Hong Kong were supported by post-earnings buying in a few stocks.

Kunlun Energy Co. (CNPXF) added 1.5% after the company posted a 5% increase in its first-half profit, while Henderson Land Development Co. (HLDCY) advanced 2.7% despite a modest decline in its profits.

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