Asian shares edge higher after Fed vote, China, Greece eyed

By Saikat Chatterjee

HONG KONG (Reuters) - Asian shares rose for a third consecutive day on Friday, and the dollar remained on the back foot against the region's currencies as investors bet U.S. interest rates will not as rise quickly as expected.

"This removes a source of uncertainty for Asian markets in the near term and should be a positive factor going ahead, though the Greek factor will temper any optimism, "said Stephen Chiu, a strategist at Mitsubishi UFJ Financial Group in Hong Kong.

A moderate recovery in the U.S. economy in previous months had raised concerns the Federal Reserve would strike a hawkish stance at Wednesday's meeting, but its cautious tone sparked a sense of relief and prompted investors to snap up risky assets.

A broad index of Asia-Pacific shares outside Japan gained 0.6 percent while Japan's Nikkei rose 0.9 percent from a one-month low set on Thursday.

Major U.S. share indexes jumped about one percent, with the Nasdaq Composite finally erasing its last standing milestone from the dot-com era to set a record intraday high.

While analysts concluded the Federal Reserve is still on track for September to implement its first rate hike since the global financial crisis, fixed income derivatives markets such as Fed fund futures expected the first rate increase only in December.

"The markets seem to be concluding that the Fed will raise rates only once this year, and not twice as had been priced in (before the Fed's policy meeting ended on Wednesday)," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

Growing expectations of a slower trajectory of U.S. interest rate increases sent the dollar swooning against a basket of currencies with the broad dollar index languishing near one-month lows.

Despite the quiet optimism across Asia, investors are keeping a close eye on the ongoing turbulence in Chinese stocks where benchmark indexes are down more than 3 percent in early trade.

At current levels, mainland shares are on course for their worst weekly performance since the first week of October 2008 -- or the depths of the global financial crisis.

CLSA strategists said in a recent note the market rally is more fragile than in 2007 when the economy was overheating and growing at a nominal 20 percent, while this time around the common driver is the strong belief in the government's ability to protect the economy against a sharp slowdown.

In another potential headwind for markets next week, euro zone leaders will hold an emergency summit on Monday after the currency bloc's finance ministers failed to make a breakthrough on a cash-for-reforms agreement with Greece on Thursday.

In bonds, ten-year U.S. Treasury yields settled at 2.33 percent while comparable Japanese yields held at 0.44 percent.

In commodities, oil prices were a shade weaker, but plentiful output was broadly met by demand.

U.S. crude futures edged lower to $60.41 a barrel, while Brent slipped 8 cents to $64.18.

Gold was sidelined at $1,199.15 an ounce.

(Additional reporting by Hideyuki Sano in TOKYO)