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GLOBAL MARKETS-Dollar struggles, Asian stocks hit 1-wk highs

Published 01/27/2011, 01:23 AM
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* Asian stocks rise to one-week highs

* Dollar under pressure after dovish-sounding Fed

* Copper up 1 pct; crude oil holds above $87 (Updates prices)

By Ian Chua

SYDNEY, Jan 27 (Reuters) - The U.S. dollar held near 2-1/2 month lows on Thursday, while commodity prices and Asian stocks rose after U.S. Federal Reserve policymakers voted unanimously to maintain a $600 billion bond-buying plan to fuel an economic recovery.

While the outcome of the Fed meeting was largely expected, it backed the view that a wave of liquidity seeking higher returns would continue to flow into riskier assets.

"In this sort of environment, you look for growth assets. So investors are looking to park their money in investments that will provide good returns over time. As a result, equities and commodities are high up on the list," said Craig James, chief economist at CommSec in Sydney.

Japan's Nikkei average rose 0.7 percent, while stocks elsewhere in Asia climbed 0.3 percent to their best level in a week.

Chinese shares advanced for a second day, with Shanghai's key stock index up 1 percent, but fresh measures to cool China's real estate market knocked property stocks lower. South Korea's KOSPI hit a record high.

Among the underperformers was the Australian market , which closed a touch lower after the government announced a new income tax to help fund a multi-billion-dollar rebuilding programme for flood-devastated areas.

Policymakers at the U.S. central bank unanimously agreed to continue with the bond purchases, the first time there was no dissent since December 2009.

The Fed, concerned about high unemployment, also said underlying U.S. inflation was trending downwards, despite higher commodity prices, contrasting in tone to other central banks, particularly those in emerging markets.

Rising price pressures have already forced the likes of India and South Korea to lift rates this year and more action is expected in the months ahead, fuelling worries that tighter policy could derail growth.

Those concerns have dealt a heavy blow to several Southeast Asian stock markets in the past few weeks, with investors locking in profits on last year's stellar gains.

But a bounceback in these markets this week suggested some investors consider the sell-down was overdone.

Still, for markets to continue to perform, "investors need assurance that inflation can be contained without tighter monetary policy stifling growth", said SooHai Lim, investment manager of Baring ASEAN Frontiers Fund.

"We believe the positive story for the Association of South East Asian Nations (ASEAN) and the frontier markets, spearheaded by Sri Lanka and Vietnam, has not changed."

DOLLAR SAGS

The dollar index , which measures the performance of the greenback against a basket of major currencies, slipped back to lows not seen since Nov. 11. It last traded down 0.3 percent at 77.727.

"The lack of dissent (among FOMC members) suggests that the committee remains as dovish as previously, showing few concerns on inflation or likelihood to reverse aggressively accommodative monetary policy," said David Rodriguez, strategist at DailyFX.

"The U.S. dollar could continue to decline on dovish outlook for domestic monetary policy."

U.S. President Barack Obama, in his State of the Union address late on Tuesday, called for investment in some areas and cuts in others to make the U.S. economy more competitive.

The euro held above $1.3700 , having risen to $1.3721 overnight, a high last seen on Nov. 22, while the dollar eased to 82.17 yen , hovering near one-week lows around 81.96 set earlier in the week.

Copper on the London Metal Exchange climbed 1.2 percent to $9,437 a tonne, not far off a record high around $9,781.00 set earlier this month.

U.S. crude was a touch lower on the day but still above $87 a barrel, some distance off Wednesday's two-month low of $86.03. (Editing by Alex Richardson)

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