Asian markets consolidate as EU tests Greek commitment

Asian markets consolidated on Wednesday as investors waited on Greece to demonstrate its commitment to deliver harsh reforms in exchange for a vital rescue deal, while European officials scaled back expectations Athens will live up to its promises.

Positive German and US data and measures to pump up global liquidity, including fresh steps by the Bank of Japan (BoJ) on Tuesday, helped ease some tension sparked by Moody's threat to cut the credit rating of non-euro zone member Britain.

Expectations that the European Central Bank would supply ample liquidity again later this month continued to underpin lower-rated euro zone debt markets, keeping their refinancing efforts on track and reducing investors' worries.

MSCI's broadest index of Asia Pacific shares outside Japan rose 0.8%.

Japan's Nikkei rose to six-month highs on the BoJ's surprise easing action, which pushed the yen to a 3-1/2-month low against the dollar of 78.67, bolstering exporters. The index was jumped 1.8%, outperforming its Asian peers.

The BOJ's aggressive quantitative easing and a decision to set an inflation goal of 1% to help pull the economy out of deflation had a rare global impact, mirroring markets' heavy reliance on central bank funding to ride out uncertainty while the euro zone debt crisis drags on.

Analysts also noted that share prices had risen in Asian countries that have introduced inflation targeting.

"The adoption of such targets coincided with the burst of the IT bubble which sent global equities lower, but stock markets of these Asian countries were the first to emerge from the downtrend," said Eiji Kinouchi, chief technical analyst at Daiwa Securities.

"Inflation targeting is effective against prices as well as for growth rate," he said, adding that the BOJ's announcement could be a turning point for Japanese shares.

The euro inched up 0.1% to $1.3145, off Tuesday's low around $1.3080.

"An initial reduced risk sentiment was tempered by the BoJ adding to global liquidity and so offsetting the European credit rating downgrades by Moody's," ANZ said in a research note.

Other assets -- copper, oil and gold -- also rose along with the recovery in the euro and equities.

US crude edged up 0.3% to $101.01 a barrel and Brent crude added 0.4% to $117.87.

London copper gained 0.5% to $8,455 a tonne, with markets also seeking clues on Chinese demand. Spot gold added 0.3% to $1,724 an ounce but investors refrained from taking bets before the situation in Greece becomes clear.

Greece fate

Euro zone finance ministers dropped plans on Tuesday for a special face-to-face meeting on Greece's new 130 billion euro international bailout because Greece has shown little sign of meeting the deadline to provide a firm commitment to reforms. Getting a bailout is crucial for Athens, with 14.5 billion euros in debt repayments falling due on March 20.

Euro ministers will hold a telephone conference call before a regular meeting already scheduled for February 20.

In the meantime, a government source said on Tuesday that Greek conservative party leader Antonis Samaras is expected to deliver a letter of commitment to international lenders on Wednesday.

Europe gave Greece until Wednesday to specify how 325 million euros of the 3.3 billion euros demanded in budget savings will be achieved and to give a written commitment to implement the terms of the deal.

China will continue to invest in eurozone government debt, Chinese central bank governor Zhou Xiaochuan said on Wednesday, adding that Beijing remains confident in the euro and in the ability of Eurozone members to solve their debt problems.

Easing impact

Asian credit markets were subdued early on Wednesday, with the spreads on the iTraxx Asia ex-Japan investment grade index barely changed from Tuesday.

Sterling recovered from a two-week low against the dollar hit on Tuesday after Moody's warning, but remained vulnerable before the Bank of England's latest growth and price forecasts due later in the session. The forecasts could offer clues on whether more monetary easing is likely after the BoE increased quantitative easing last week.

Debt auctions from Italy and Spain were undeterred by Moody's sovereign rating downgrades, as cheap ECB loans supported demand.

"Risk sentiment is trading sideways, trapped between ECB support and solvency concerns," Barclays Capital said in a note.

"We expect the first to keep risk sentiment anchored, compensating investors for staying engaged in risky assets. But we also expect the latter to keep risk premia elevated, capping the upside in risky assets to a great extent," it said.