Asia stocks rise, dollar sags after Fed official's dovish comments

By Shinichi Saoshiro

TOKYO (Reuters) - Asian stocks rose early on Tuesday, boosted as Wall Street rallied overnight after Federal Reserve Board Governor Lael Brainard brought relief to risk asset markets by reducing prospects of a near-term interest rate hike.

The dollar, on the other hand, nursed losses against its peers after Brainard reiterated her dovish views.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.5 percent.

Japan's Nikkei <.N225> added 0.6 percent, South Korea's Kospi rose 0.9 percent and Australian stocks <.AXJO> advanced 0.7 percent.

While some investors had speculated that the Fed's Brainard would switch over to the more hawkish camp, she said Monday she wanted to see a stronger trend in U.S. consumer spending and evidence of rising inflation before the Fed raises rates, and that the United States still looked vulnerable to economic weakness abroad. [nW1N17W00M]

The comments solidified the view the U.S. central bank would leave interest rates unchanged next week. [nL1N1BO13V]

Future traders are now pricing in a 15 percent chance of a hike at the Fed's Sept. 20-21 policy-setting meeting, down from 21 percent earlier on Monday, according to the CME Group's FedWatch Tool.

U.S. stocks racked up their strongest gain in two months on Monday, with the Dow rising 1.3 percent and the S&P 500 gaining 1.5 percent. [.N]

"Keep in mind that European and U.S. equities were already rallying into Brainard's speech and those brave enough to fight the progressive bearish equity sentiment were rewarded with a U.S. stock market that closed on its high, with excellent participation," wrote Chris Weston, chief market strategist at IG in Melbourne.

The dollar was steady at 101.860 yen after shedding 0.8 percent overnight. The euro nudged up 0.1 percent to $1.1239 while the dollar index stood little changed at 95.108 after losing about 0.2 percent the previous day.

In the global bond market, the recent sharp rise in yields was halted for now after Brainard's comments. Yields had been rising as bond prices fell in the face of perceived limits to monetary policies of major central banks such as the European Central Bank and the Bank of Japan.

The benchmark 10-year U.S. Treasury note yield stood at 1.661 percent after touching a 2-1/2 month high of 1.697 percent earlier on Monday.

Crude oil prices dipped as investors sold into the previous day's gains. Brent crude was down 0.3 percent at $48.16 a barrel after rising 0.65 percent overnight on a weaker dollar and stronger U.S. equity markets.

(Reporting by Shinichi Saoshiro; Editing by Eric Meijer)