Euro extends gains; stocks firm

SYDNEY: The euro rallied further on Monday from 10-month lows, buoyed by a burst of short-covering as the quarter draws to an end, while Chinese shares hit two-month highs as investors bought large cap stocks like banks.

The euro bounced to as high as $1.3530 in early trade, up 0.8 percent from Friday, as traders continued to unwind bets against the currency after euro zone policymakers agreed on Thursday to create a safety net for debt-laden Greece.

But the euro is still set for its worse quarter since the height of the financial crisis in September 2008 as worries about Greece weighed on the currency and riskier assets such as stocks and commodities.

Asian stocks outside of Japan have recorded a mere 1 percent rise so far this year, calming after a 72 percent jump in 2009, but market watchers see a stronger second quarter if the region''s economic recovery remains robust and corporate profits pick up.

The MSCI Asia Pacific index ex Japan was 0.5 percent higher by late morning.

Japan''s Nikkei fell 0.5 percent to 10,939 as investors took profits after the benchmark hit an 18-month high last week, but has still gained around 3 percent so far this year.

"At this point, we''re predicting that some 80 percent of companies are likely to see improved profits, and some analysts are even more optimistic," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

"This optimism will really start showing up in the market at the end of April, when Japanese earnings move into high gear, and in the next quarter the Nikkei may well rise as far as 12,000."

If the Nikkei manages to overcome resistance at 11,310, the 38.2 percent Fibonacci retracement of its 2007-2008 plunge, then the outlook may be as bright as suggested by the MACD and Ichimoku charts. Shanghai''s Composite Index rose more than 2 percent to as high as 3,127, above its key 125-day moving average, as investors bought shares of banks and other heavyweights ahead of the launch of the country''s first stock index futures on April 16.

The euro pared gains to $1.3441 by late morning, but has still lost about 6 percent against the dollar so far in the quarter as worries about Greece and other weaker euro zone members raised questions about the short- and long-term sustainability of the single currency.

While some market watchers thought the latest bounce may have wings, the latest data from the Commodity Futures Trading Commission suggested the euro has yet to win over many sceptics.

Net short positions had jumped over 1.5 times to nearly 75,000 in the week ending March 23, data had showed.

The dollar index against major currencies slipped 0.2 percent.

Elsewhere, oil prices CLc1 were a touch firmer, helped by a weaker U.S. dollar, which also lifted gold prices to a two-week high.

All eyes this week will be on the U.S. non-farm payrolls data on Friday. The consensus is for a gain of 190,000 jobs in March, the second month of job growth since the recession started in December 2007, and the largest increase since March of that year.

Other U.S. job data on Wednesday and Thursday could give clues on the non-farm number. Many markets around the world will be closed on the Good Friday holiday.