Asian markets rose again Tuesday on growing confidence that US politicians will agree a deal to avert a fiscal cliff but the euro took a hit as France lost its top-notch credit rating.
The decision by Moody’s to downgrade French debt staunched the single currency’s rise, which had been stoked by hopes that eurozone leaders will agree to hand Greece its latest batch of bailout cash.
Tokyo, which has risen about five percent in the past three sessions on expectations of fresh monetary easing, added 0.18 percent in early trade, while Hong Kong climbed 1.02 percent and Sydney was 0.34 percent higher.
Shanghai advanced 0.23 percent and Seoul was up 0.63 percent. Wall Street provided a strong lead as markets opened for the first time since Republicans and Democrats on Friday pledged to work on a budget that would avoid the fiscal cliff of tax hikes and spending cuts due on January 1 that would tip the economy into recession.
Global shares have tumbled in recent weeks on fears the two parties would not find a compromise but the comments from Congressional leaders have soothed fears. The Dow climbed 1.65 percent, the S&P 500 jumped 1.99 percent and the Nasdaq surged 2.21 percent. The rally was also boosted by figures showing that existing home sales rose 2.1 percent in October from September and home builder confidence improved for a seventh straight month in November.
However, European woes continue to nag. On Monday it was France in the spotlight after Moody’s cut its gold-plated AAA credit grade by one notch to “Aa1” and maintained a negative outlook, meaning another downgrade was possible.
It cited the the country’s “disproportionately large” exposure to the troubled countries on Europe’s periphery. Fellow ratings agency Standard & Poor’s made a similar move in January. The euro, which has been enjoying a rally, suffered as a result. In early Tokyo trade it bought $1.2774 and 103.93 yen, compared with $1.2778 and $103.99 yen in New York late Monday.
The single currency had risen to $1.2816 and 104.25 yen shortly before Moody’s made its announcement. The dollar was trading at 81.35 yen in Tokyo, compared with 81.40 yen in New York. The yen remains under pressure — which has lifted the Nikkei index — after the frontrunner to become Japan’s next prime minister in December polls said he would embark in an aggressive policy of monetary easing to help the economy.
Investors had been buying the euro on a likely agreement between regional finance ministers to hand Athens the latest instalment of cash it needs to avoid bankruptcy.
They will try Tuesday to reach a framework agreement at a meeting on Greece and heal a split with the International Monetary Fund over a key debt reduction target.
“We are headed for an agreement, but a partial one,” said a European diplomat who asked not to be named.
