Asia stocks up as weak data crimp US Fed hike chances

Asian stocks firmed on Friday after weak US data reduced the already low chance of an interest rate increase by the Federal Reserve at next week's meeting, sending the Treasury yield curve surging to its steepest level in 2-1/2 months.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 per cent, but it was headed for a loss of 2.4 per cent for the week.

Japan's Nikkei advanced 0.4 per cent, paring losses for the week to 2.9 per cent, while Australian shares climbed 1.2 per cent, on track for a weekly decline of 0.8 per cent.

South Korean, Chinese, Taiwanese and Hong Kong markets are closed for holidays.

US August retail sales and manufacturing output fell more than expected, data released Thursday showed. The lacklustre reports prompted the Atlanta Fed to lower its third-quarter gross domestic product estimate to a three per cent annual rate, from 3.3 per cent earlier.

"Anyone still left calling for a September hike next week from the Federal Reserve must be feeling a bit hot under the collar after further signs of economic vulnerabilities," Chris Weston, chief market strategist at IG in Melbourne, wrote in a note.

"It's no surprise to see reasonable buying in the short to medium duration US Treasuries, while the longer end of the curve hardly moved," he said.

The gap between five-year note yields and 30-year bond yields widened to as much as 130.10 basis points on Thursday, the steepest since June 27.

Futures traders are pricing in a 12 per cent chance of a rate increase this month, down from 15 per cent on Wednesday, according to the CME Group's FedWatch tool. Friday's consumer price inflation data is the next test for rates-focused traders.

The dwindling chances of a rate hike helped boost US stock indexes between one per cent and 1.5 per cent on Thursday.

Wall Street also benefited from a 3.4 per cent jump in Apple shares, after the company said that the first batch of its new iPhone 7 Plus sold out globally.

Besides the Fed, the Bank of Japan also meets next week. The central bank will conduct a comprehensive review of its stimulus programme after failing to reach its two per cent inflation target.

Few Japanese companies see the central bank's aggressive monetary stimulus as achieving its stated goal of spurring inflation, a Reuters poll found, with firms citing negative fallout from the programme more than positive effects.

On Thursday, the Swiss National Bank (SNB) and the Bank of England (BoE) held interest rates steady.

The SNB warned that significant risks remain after sticking with its ultra-loose monetary policy and currency intervention, while the BoE said it is still likely to cut interest rates to just above zero this year.

In currencies, the dollar was little changed at 102.04 yen after Thursday's 0.3 per cent loss, heading for a 0.6 per cent decline for the week.

The dollar index, which tracks the greenback against a basket of six major peers, remained steady at 95.277, and set to end the week little changed.

The euro was also flat for both Friday and the week at $1.124.

Oil prices pulled back after Thursday's gains of as much as 2.5 per cent as renewed risk appetite stemmed a two-day rout.

Both Brent crude and US crude retreated 0.5 per cent to $46.35 and $43.68 a barrel, respectively.

Gold inched up after the resurgence in risk appetite pushed it down 0.7 per cent on Thursday. Spot gold was last trading up 0.1 per cent at $1,314.74 an ounce, but still down about one per cent for the week.