Asian markets rally despite US inflation spike, dollar on defensive

Asian stocks gained on Thursday after Wall Street brushed aside strong U.S. inflation data and surged, a counterintuitive move that also saw the dollar pinned at two-week lows even as Treasury yields jumped in anticipation of a quicker pace of U.S. interest rate hikes.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4 percent.

Australian stocks climbed 0.8 percent and South Korea's KOSPI advanced 1.1 percent. Japan's Nikkei jumped 1.1 percent following three successive days of losses that took it to a four-month low the previous day.

Wall Street surged on Wednesday, with the Dow up 1 percent and the S&P 500 .SPX climbing 1.34 percent, as investors shrugged off the stronger-than-expected inflation data and snapped up shares of Facebook, Amazon.com and Apple.

U.S. consumer prices rose more than expected in January as Americans paid more for gasoline, rental accommodation and healthcare, further raising inflation concerns and the prospect of the Federal Reserve hiking interest rates more than initially expected.

That drove U.S. Treasury yields on most maturities higher on Wednesday, with those on benchmark 10-year notes hitting a four-year high.

The dollar index against a basket of currencies was slightly lower at 88.980 after losing more than 0.6 percent overnight despite the strong inflation number. The recovery in broader risk sentiment was seen weighing on the dollar, which had gained during the market turmoil earlier in the month.

The U.S. currency has been buffeted by a variety of setbacks this year, including from prospects Washington might pursue a weak dollar strategy to the perceived erosion of its yield advantage as other countries part with easier monetary policy. Concerns about the growing U.S. fiscal deficit have also weighed on the greenback.

The dollar stretched overnight losses against the Japanese yen to touch a 15-month low of 106.420, having declined more than 2 percent so far this week and causing the Nikkei to underperform its global peers.

“Japanese stocks could act as drag to their regional counterparts if the stronger yen hampers its performance. In that respect the strong yen could be seen as a factor preventing the stabilization in global markets,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

The euro extended gains to reach a 10-day high of $1.2467 after surging 0.8 percent the previous day.

The South African rand traded at 11.71 per dollar after surging to a 2-1/2-year high of 11.66 overnight after the country's ruling African National Congress (ANC) said it would proceed with a vote to remove President Jacob Zuma from office.

The Australian dollar was steady at $0.7929 after rallying 0.85 percent the previous day.

In commodities, U.S. crude futures CLc1 were up 0.35 percent at $60.82 per barrel after prices surged the previous day as U.S. crude stocks rose less than expected and Saudi Energy Minister Khalid al-Falih said major oil producers would prefer tighter markets than end supply cuts too early.

Crude also benefited from the dollar’s weakness. Oil tends to move inversely to the dollar, and has also of late been trading in tandem with stocks.