By Swati Pandey
SYDNEY (Reuters) – Asian shares advanced on Monday as investors breathed a sigh of relief after encouraging Chinese data suggested that the world's second largest economy may be starting to stabilize thanks to Beijing's stimulus surge.
Economic growth in the second quarter slowed to 6.2% in the second quarter from the previous year, the weakest pace in at least 27 years, while separate data showed that industrial production and retail sales in the country exceeded forecasts.
According to analysts, the promising monthly activity data suggested that a series of Chinese stimulus measures have been able to shore up domestic activity and compensate for some of the damage of a prolonged trade war with the United States.
Equity markets were upset by the Chinese data, as some expected Beijing to temper more stimuli.
The broader MSCI index of Asia and the Pacific shares outside Japan left losses 0.2% higher at 526.72 points. It fell a little over 1% last week, which generated five consecutive weeks of gains.
The trade was expected to be light, since Japan was closed for a public holiday.
Australian equities fell 0.4%, while South Korea's KOSPI remained virtually stable. Chinese stocks reduced early losses with the blue-chip index by 0.4%. The Hang Seng index of Hong Kong added 0.3%.
"Investors may be reducing the expectation of today's data, as fiscal measures seem to be working," said Westpac analyst Frances Cheung.
"That said, we believe the PBoC will continue to support liquidity, we expect yields to be stable and any temporary downward trend to be expressed through swaps."
Later in the week, US retail sales UU And industrial production data will provide more clues about the health of the world's largest economy. The Federal Reserve of EE. UU It will launch your & # 39; Beige Book & # 39; On Wednesday, investors will seek comments on how commercial tensions were affecting business prospects.
In the currency markets, the Australian dollar, often played as a liquid proxy for the Chinese yuan, jumped after the data to a maximum of $ 0.7033, a level not seen since July 4.
The dollar was a little higher at 96,871 against a basket of major currencies. The dollar index fell for three consecutive days as the markets traded in full with the possibility of a cut of 25 basis points (bps) to US interest rates. UU There is also a small chance of a 50 bps cut.
Against the Japanese yen, the dollar rose from almost the lowest since early June to 108.04, while the single currency was slightly below $ 1.1267 after three successive sessions of gains.
Expectations that the Fed will maintain support rates have caused the bonds to join with US Treasury bonds. UU Ten years below the current Federal Reserve's rate range of 2.25% to 2.50%.
"The rhetoric of the Polish Fed has yielded a July rate cut, in the eyes of the market, as a fait accompli: it is not if they decrease, but to what extent," said Hans Redekar, strategist at Morgan Stanley, in a note.
Redekar said the bank was re-entering its short position in dollars and in long yen.
"If markets are disappointed, the yield curve is likely to flatten, the USD will strengthen and financial conditions will harden, these forces would exacerbate the already considerable obstacles facing the global economy," he added.
"Global reflation requires a weaker USD to boost world trade and commodity prices."
Concerns about global growth and low inflation have caused investors to be accumulating money in bonds and money market funds, Jefferies said, citing his global asset fund flow tracker.
"The danger is that with a mountain of cash parked in the money market funds, any commercial ceasefire would cause a large change in the safe assets," said Sean Darby, global capital strategist at Jefferies.
"At present, investors do not seem to be in any particular hurry to buy shares, earnings revisions have not yet come to an end, while economic surprises have been rare," he added.
"The conclusion is that we would emit a pause in the rise in risks."
In commodities, US crude fell 31 cents to $ 59.90 per barrel. Brent crude dropped 22 cents to $ 66.50.
Gold fell to 1,410.01 an ounce, moving away from a recent six-year high of $ 1,438.60.