KUALA LUMPUR (Nikkei Markets) -- Malaysian shares chalked their best session in 22 months on Thursday, as lenders gained amid expectations that interest rates are set to rise. Hopes of more foreign fund inflows also supported equities.
Singapore stocks fell, driven by losses in heavyweight banks.
The Bursa Malaysia KLCI index rose 1.2%, the biggest gain since February 2016, to 1,759 points. The closing level is the highest in more than two months.
The gains in banking stocks came after the Fed raised rates by a quarter-percentage point as expected and boosted its forecast for U.S. economic growth.
"Malaysia's central bank may be under pressure to follow the Fed and hike interest rates, or the ringgit could weaken," said Pong Teng Siew, director at Inter-Pacific Securities. "This would provide a boost to lender's margins, at least temporarily."
Last month, Bank Negara Malaysia said it was considering reviewing its current degree of monetary accommodation.
Out of the 30 stocks on the KLCI, 24 ended higher.
Global inflows into Malaysia's stock market totaled 282.4 million ringgit ($69.21 million) on Tuesday and Wednesday.
"Malaysia's market is attractive from a regional perspective, as its valuations now lag behind neighboring markets," Inter-Pacific's Pong said. "Excitement over the upcoming election has also helped. This rally could last for the next two to three months."
Elections in Malaysia need to be called no later than August 2018. Prime Minister Najib Razak rallied party troops at his party's annual assembly that ended Saturday, seeking a bigger victory.
Meanwhile, the World Bank on Thursday raised Malaysia's 2017 growth estimate to 5.8% from 5.2%, the third such upward revision this year.
AMMB Holdings rose 4.8% after Reuters reported that the bank could launch the sale of its stake in auto insurer AmGeneral Insurance by early next year.
A sale would be timely in helping the group raise its capital ratios, considering the expectations of pressure on banks as they adopt new reporting standards in 2018, UOB Kay Hian Securities said.
YTL rallied 6.5%, extending Wednesday's advance after its managing director said the company secured a rail contract worth 8.6 billion ringgit.
The contract could add 1 billion ringgit per year to YTL's construction revenue even it secures just 50% of the total project, boosting profit-after-tax by up to 10%, MIDF Amanah Investment Bank said in a note.
Oil and gas services company Yinson Holdings rose 2.7% after it posted a 44% increase in third-quarter profit, beating expectations.
The stocks fell after U.S. bond yields tumbled by the most in six-weeks following the Fed policy decision. While the central bank raised rates, it did not increase the projection for rate hikes in 2018, forecasting three more increases. Analysts had said that there was a possibility of Fed raising its guidance for future rate hikes, considering the potential economic boost from the proposed tax cuts.
Singapore's interest rates are closely influenced by that of the U.S., more than other economies in the region, as the city-state follows an exchange rate- based monetary policy. The banks are seen as beneficiaries of rising interest rate environment as a steepening yield curve helps increase their net interest margins.
Out of the 30 stocks on the STI, 17 closed lower while 3 were unchanged.
KGI Securities' retail research manager Joel Ng said the index "lacks further upside catalysts" until the fourth-quarter earnings season begins in January.
"Confidence in the property market is still on the rise - we continue to expect strong participation in land tenders, especially for choice sites," DBS Vickers Securities said.
GSS Energy jumped 7.7% after the company said it struck oil in Indonesia and it would start production by the third-quarter of next year.
--Alexander Winifred and Joannah Perez