Asian Stocks Rally On Wall Street’s Lead And Debt Ceiling Optimism

TOKYO, May 18- Asia shares rallied on Thursday, following Wall Street's lead, and the dollar held just off a two-month high versus the yen amid signs Washington might be close to a deal to raise the debt ceiling and avert a first-ever default.

On Wednesday, President Joe Biden and top U.S. congressional Republican Kevin McCarthy underscored their determination to reach an agreement soon by pledging to negotiate directly on a deal amid estimates the Treasury could run out of money by the start of June.

Biden will cut short a trip to Asia to return to talks on Sunday.

As investors drew comfort from that reassurance, MSCI's broadest index of Asia-Pacific shares (.MIAP00000PUS) pushed 0.85% higher.

"Markets have chosen to be optimistic," Rodrigo Catril, senior FX strategist at National Australia Bank, wrote in a client note.

"History, of course, tells us that a deal is more likely than not to be reached on the 11th hour, suggesting there is still room for a few bad headlines," he added, noting as a case in point. "Treasury has almost run through all of its authorised extraordinary measures to keep paying the bills."

Japan's Nikkei (.N225) continued to outperform, surging to a fresh 20-month peak of 30,667.13 before last trading 1.6% higher at around 30,575. Any advance above 30,795.78 would take it to the highest since 1990 when Japan's bubble economy had not yet burst.

Hong Kong's Hang Seng (.HSI) gained more than 1%. Mainland blue chips (.CSI300) rose 0.39%.

Australia's stock benchmark gained 0.5%, and received an additional tailwind from domestic data showing an unexpected fall in employment in April, taking some pressure off the central bank for further tightening.

The Aussie dollar suffered though, flipping from a small gain to a loss of as much as 0.44% following the jobs report.

Futures pointed to gains of about 0.5% for the UK FTSE (.FTSE) and German DAX (.GDAXI) at the open.

The Wall Street rally looked to have run its course though, with U.S. stock futures more or less flat.

Long-term U.S. Treasury yields eased back slightly in Tokyo after rising to the highest since March 1 at 3.589% in New York.

The dollar pushed to a new two-week high at 137.745 yen, putting it 0.035 yen below its highest since March 8. It also ticked higher against the euro, inching back toward the six-week high of $1.08105 per euro reached overnight.

The greenback renewed a 5 1/2-month peak above 7 yuan in offshore trading after topping the closely watched level on Wednesday.

The Chinese currency, also known as the renminbi (RMB), is under pressure from a string of weak data that suggested Asia's biggest economy may have already passed the peak of its post-COVID recovery.

"While RMB sentiment has been deteriorating quickly ... we do not see panic selling taking place," Mizuho Bank's chief Asian FX strategist Ken Cheung wrote in a report.

"We are not turning bearish on RMB in the medium term as China's annual growth should still outperform other major economies."

Gold found its feet around $1,979 per ounce after dipping to a three-week low of $1,974.30 in the previous session.

Oil eased a little after Wednesday's $2 rallies for both Brent and West Texas Intermediate (WTI) crude.

Brent crude futures slipped 24 cents to $76.72 a barrel. U.S. West Texas Intermediate crude retreated 21 cents to $72.62.

Brent crude futures dipped 20 cents to $76.76 a barrel, and U.S. WTI also dropped 20 cents to $72.63 a barrel.