Asia shares to rally as turnaround 'astonishes'

By Wayne Cole

SYDNEY (Reuters) - Asian shares were set to rally hard on Thursday after global markets made a truly remarkable comeback from the shock of Republican Donald Trump's presidential victory, dumping safe-havens for the tempting returns of risk assets.

The U.S. dollar carved out a staggering range, rebounding from as low as 101.19 yen all the way to 105.83, a move that will come as a huge relief to Japanese exporters.

Nikkei futures were trading at 17,250, no less than 1,000 points above the cash index close, implying stocks would recoup all of Wednesday's 5 percent loss and more.

Yields on U.S. Treasury 10-year notes reversed an initial plunge to 1.716 percent to reach 2.09 percent, the highest since January. The net rise of 21 basis points was also the largest daily increase since July 2013. [US/]

Analysts were more than a little puzzled by the moves.

"An astonishing turnaround in risk appetite pushed equities and Treasury yields higher," said Imre Speizer, an economist at Westpac. "Markets appeared to reassess the economic outlook under Trump, towards one of higher growth and higher inflation."

He noted that a key market barometer of 10-year inflation expectations had jumped to a 16-month peak of 1.87 percent.

This in turn led investors to completely revise the outlook for U.S. interest rates, with the probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 80 percent.

The dollar responded by rising across the board. Against a basket of currencies , the dollar recovered from its Wednesday trough of 95.885 to reach 98.602, a gain of 0.8 percent on the day.

Having stretched as high as $1.1299 in the initial panic over Trump's win, the euro then slumped all the way to $1.0913 - a move of almost four cents.

The action was no less noteworthy on Wall Street, where S&P 500 futures had shed 5 percent at one stage in Asia on Wednesday only to stand 1.1 percent higher late in the day.

The Dow jumped 1.4 percent, while the cash S&P 500 and the Nasdaq both added 1.11 percent. Trading volume was the highest since June, when Britain also shocked traders by voting to abandon the European Union.

The CBOE Volatility index <.VIX>, a gauge of investor anxiety, fell 23 percent and was on track for its biggest daily drop since late June. [.N]

ASIA WARY ON TRADE, ALLIANCES

Traders said investors piled into financial and healthcare stocks on speculation a Trump administration would greatly ease regulations on the sectors.

Trump has also promised generous tax cuts, particularly for the higher paid, and more infrastructure and defence spending, though analysts were unsure how much of this would actually come to fruition.

There were also concerns about whether Trump would follow through with threatened punitive tariffs on Chinese and Mexican exports, potentially triggering a global trade war.

Mexico's peso was still down 8.7 percent after touching a life-time low overnight. [EMRG/FRX]

"Further out, Trump's protectionist policies may prove another big step back in the gradual unwinding of goods globalisation that has defined the past 30 years," wrote analysts at Nomura in a note to clients.

"Another important factor is that a Trump presidency would bring with it uncertainty that could undermine the Pax Americana, with all the benefits this has brought to the world in general and, perhaps, Asia in particular since 1945."

For now, investors seemed willing to give the president-elect the benefit of the doubt, as witnessed by a broad advance in bulk commodity prices.

Copper alone added 3.4 percent while iron ore surged 4.7 percent <.IO62-CNI=SI> to its highest since January 2015.

Oil prices recovered along with U.S. equities, with Brent crude up 53 cents at $46.57 a barrel and U.S. crude rising 36 cents to $45.34. [O/R]

Safe-haven gold, however, pulled back sharply to $1,277 an ounce having been as high as $1,337.40 at one stage .

(Editing by James Dalgleish)