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Nikkei Markets

Asian equities gain after US Fed signals rate cuts in future

Chinese financial firms, real estate developers boost A300 Index

HONG KONG (Nikkei Markets) -- Asian shares advanced Thursday after the Federal Reserve indicated that it was open to cutting interest rates to help sustain U.S. economic expansion.

The Nikkei Asia300 Index of companies outside Japan rose 1.6% to 1,320.59.

On Wednesday, the Fed left rates unchanged but signaled that interest rates could come down in the months ahead. Fed officials were of the view that uncertainties about the economic outlook had increased and in light of that the authority will act appropriately to sustain the current expansion.

The dovish commentary from the central bank comes amid an ongoing trade war between the U.S. and China, which has prompted worries on the world growth outlook. The trade fears, combined with a supportive Fed, has now prompted investors to price in a more than 90% probability that interest rates would be lowered by at least 50 basis points by the end of this year. There is a one-in-four chance that the rates could be cut by as much as 100 basis points before December.

The dollar slumped and Treasury yields plumbed new multi month lows following the Fed decision. The 10-year U.S. yield fell below 2%.

DBS Bank said that the Fed's stance will embolden Asian central banks to ease policy.

"The prospect of a looser U.S. monetary policy has been communicated clearly and this should embolden Asia central banks to embark on more rate cuts," it said.

Four Asian central banks reviewed their policy stance on Thursday. Monetary authorities in Japan, the Philippines, and Taiwan kept their policy rate unchanged. Indonesia's central bank also held its policy interest rate unchanged, but moved to cut the reserve requirement for banks and said it was now appeared a "matter of timing and magnitude" before it made its first reduction in rates since September 2017.

In movers on the A300 index on Thursday, New World Development led rate-sensitive Hong Kong developers' higher, adding 2.3%.

Among financial firms, Hong Kong-shares of China Life Insurance advanced 3.3% and China Construction Bank climbed 0.9%. An index of Chinese companies listed in Hong Kong, the Hang Seng China Enterprises Index, added 1.5%.

China Unicom (Hong Kong) rose 0.9% after the telecommunications services operator said it added 2.86 million 4G subscribers in May, taking the aggregate number of subscribers to the service to 235.9 million.

Indian information technology companies underperformed amid a Reuters report that the U.S. has told India that it is considering ceilings on a particular category of work visas for countries that force foreign companies to store data locally. Wipro fell 2.4%.

--Nimesh Vora

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