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Asian stocks extend recovery, China rallies on stimulus hopes

TOKYO (Reuters) – Asian stocks extended gains on Friday thanks to Wall Street scoring all-time highs, as investors gravitated to the view that the latest exchange of tariffs between the United States and China may be less damaging than initially feared.

A man walks past an electronic stock quotation board outside a brokerage in Tokyo, Japan, February 9, 2018. REUTERS/Toru Hanai

A rally in Chinese markets helped lift the MSCI’s broadest index of Asia-Pacific shares outside Japan 1.15 percent, buoyed in part by expectations that Beijing will pump more stimulus into its economy to weather the trade war. The MSCI index has rebounded 4.6 percent from a 14-month low on Sept. 12.

The upbeat mood is seen pushing up European shares, with financial spread-betters seeing Britain’s FTSE, France’s CAC 40 and Germany’s DAX rising 0.3-0.4 percent.

Chinese shares, which had been hit the hardest by the trade war, rallied. The CSI 300 index of Shanghai and Shenzen shares, which slumped to a two-year low last week, rose 2.4 percent, on course for its largest weekly gain in more than two years.

“China has unveiled a series of steps to support the economy this week, starting with accelerating infrastructure spending,” said Wang Shenshen, strategist at Tokai Tokyo Research.

“Yesterday we had guidelines to boost consumption, announced both by the Communist Party and the government…And there’s talk of cuts in import tariffs. So the policy direction to boost domestic demand is clear,” she said.

Japan’s Nikkei rose 0.8 percent, hitting an eight-month high.[.T]

On Wall Street, trade-sensitive industrial stocks led the gains on Thursday. The Dow Jones Industrial Average rose 0.95 percent while the S&P 500 gained 0.78 percent, both hitting record highs. [.N]

The latest rally comes after new U.S. and Chinese tariffs on each other’s goods were set at lower rates this week than previously expected, raising hopes that hostilities between the world’s two largest economies may be easing.

Despite growing anecdotal reports from companies on both sides of the Pacific that the trade war is starting to impact their operations, the outlook for corporate profits remained solid in many markets on the back of strong global growth, keeping equity valuations relatively attractive.

(For a graphic on ‘EPS growth in major share markets’ click reut.rs/2MS6RI7)

“Of course, the trade war will continue. We have to see how much damage the tariffs will cause to China’s exports. But it will probably be early next year that we will see that in hard data,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.

“And any progress in Sino-U.S. trade talks may have to wait until after the U.S. mid-term elections. This will