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Asian markets rally in early trading, building on US gains

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Hong Kong (AFP) – Asian markets rallied in early trading on Monday, building on momentum from gains in the U.S. and Europe late last week, as investors heed expectations of further rises in interest rate to control inflation.

Stocks in Japan, Australia, Singapore, Taiwan and Jakarta surged, while markets in Hong Kong, China and South Korea were closed for a public holiday.

The euro continued to appreciate against the dollar, as European investors weighed the prospect that the European Central Bank (ECB) would follow the lead of the US Federal Reserve and raise key rates.

On Sunday, German central bank president Joachim Nagel indicated that the ECB would likely continue to raise interest rates to curb runaway inflation.

Nagel predicted that inflation in Europe could peak at over 10% in December.

The ECB raised the key rate by a historic 75 basis points last week, and markets are expecting a hike of a similar magnitude at a meeting in October.

This week, investors around the world will be keeping a close eye on US inflation data for August, due out on Tuesday, with the consumer price index (CPI) expected to edge down to 8 %, still well above the Fed’s 2% target.

Traders expect the Fed to impose another sharp interest rate hike next week, after already two 75 basis point increases.

“A downside surprise in the US CPI is probably more concerning and it could weaken the dollar further,” Charu Chanana, strategist at Saxo Capital Markets, told Bloomberg Television.

“We saw some glimpses of that… towards the end of last week. That could potentially be a risk to watch out for particularly this week.”

Hopes for a “soft landing”

On Sunday, U.S. Treasury Secretary Janet Yellen said she hoped the U.S. economy could avoid a recession, but that the Fed would need to manage interest rates skillfully and also rely on “a bit of luck to achieve what we sometimes call a soft landing”.

“I hope we achieve a soft landing, but Americans know that getting inflation down is key, and longer term, we can’t have a strong labor market without inflation in check,” she told CNN.

Yellen said that as the growth rate of the US economy slowed, the job market remained “exceptionally strong”, with nearly two openings for every job seeker.

In addition to the US CPI figures on Tuesday, traders will closely watch the UK CPI on Wednesday, and the European CPI and China home sales, retail sales and industrial production data on Friday.

In Tokyo, stocks opened higher on Monday, buoyed by positive market sentiment following last week’s gains and a weaker yen.

The dollar fetched 142.65 yen in early Asian trading, versus 142.56 yen on Friday in New York.

“A cheaper yen is positive for business performance, despite recent media reports” highlighting the negative aspects of yen weakness, said chief strategist Masayuki Kubota of Rakuten Securities.

Bank of Japan chief Haruhiko Kuroda met with Prime Minister Fumio Kishida on Friday, saying the rapid weakening of the currency was “undesirable”, an indication of possible action to come to halt the slide.

Key figures around 03:00 GMT

Tokyo – Nikkei 225: 1.1% up to 28,528.90

Hong Kong – Hang Seng Index: UP 2.7% to 19,362.25 (closed bank holiday Monday)

Shanghai – Composite: UP 0.8% to 3,262.05 (closed bank holiday Monday)

New York – Dow: UP 1.2% to 32,151.71 (closing)

New York – S&P 500: UP 1.5% to 4,067.36 (closing)

New York – Nasdaq: UP 2.1% to 12,112.31 (closing)

London – FTSE 100: 1.2% up to 7,351.07 (close)

Frankfurt – DAX: UP 1.4% to 13,088.21 (closing)

Paris – CAC 40: UP 1.4% to 6,212.33 (closing)

EURO STOXX 50: UP 1.6% to 3,570.04 (closing)

Euro/dollar: UP at $1.0085 against $1.0046

Pound/dollar: UP to $1.1609 from $1.1587

Euro/pound: UP at 86.86 pence against 86.84 pence

Dollar/yen: UP to 142.65 yen from 142.56 yen

North Sea Brent: 1.4% down to $91.57 a barrel

West Texas Intermediate: 1.5% drop to $85.49 a barrel