Asian shares extend an October rally; dollar slips

MSCI's broadest index of Asia-Pacific shares outside Japan up 0.7%

Asian shares rose on Monday, extending an October rally, as investors hunted for bargains in industrials and basic materials, fueled by a rebound in commodities while the dollar struggled as hopes of a Fed rate rise this year grew even dimmer.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.7%, extending an impressive 11% rise this month as investors unwound some of their long US dollar and short commodities and emerging markets trades.

"Any signs of stimulus is being seized by the markets as a sign of stabilization and there is some bargain hunting, especially in the beaten down sectors, related to commodities," said Nicholas Yeo, head of equities (China/Hong Kong) at Aberdeen Asset Management with assets under management of US$490.8 billion globally.

While Beijing has generally refrained from launching widespread stimulus measures to boost slowing growth, it has resorted to a steady drip-feed of measures in recent weeks to support various sectors ranging from housing to autos, calming investor sentiment, and sparking a rally in the Hong Kong listed shares of Chinese companies.

China's stock market correction is "almost over", the official China Securities Journal quoted a senior central banker as saying.

China's shares led the region's markets higher with Hong Kong and Shanghai up more than 1% each. Korea was up 0.5% and Jakarta rose 0.6%. Japan is shut for a holiday.

In a sign that the sentiment towards emerging markets may have turned a corner, the much-tracked Bank of America Merrill Lynch fund flow report showed that weekly outflows from emerging market funds were at their lowest since July.

The widely-tracked VIX index, a volatility gauge of investor nervousness, was at its lowest since late August, a sign that optimism was returning to the markets after a tumultuous summer in which major indexes lost more than a quarter of their value.

On Wall Street, major indexes closed slightly higher on Friday, chalking up one of the best weekly performances so far this year. S&P 500 e-mini futures was broadly flat in Asian trading on Monday.

An unexpectedly weak US jobs report for September had led many investors to speculate that the Fed will not deliver its first hike since 2006 this year. Indeed, fed fund futures contracts were indicating a rate hike only in 2016.

In currency markets, the dollar struggled against a basket of currencies on growing concern the Fed may not raise rates until next year, triggering some unwinding of positions.

Strategists at Brown Brothers Harriman warned that technical levels warned of scope for additional dollar losses in the coming sessions. The index was trading below 95, its lowest levels in a month, according to Thomson Reuters data.

The euro was up about 0.1% at $1.13720, consolidating recent gains, while the Japanese yen held within recent broad trading ranges carved against the greenback.

In commodities, oil prices added recent gains on Monday after US drillers cut oil rigs for six straight weeks, while traders awaited Chinese trade data. 

US West Texas Intermediate crude futures were trading at $49.93 per barrel, up 0.6%. Brent futures were up 0.4% at $52.84 a barrel.

Industrial metals such as copper and zinc got some much needed respite, posting impressive gains last week.

A 19-commodity Thomson Reuters/Core Commodity CRB Index rose to its highest levels since end-July.