Asian stocks ride Wall St. rally, oil extends gains

By Saikat Chatterjee

HONG KONG (Reuters) - Asian stocks rose on Tuesday in the wake of solid gains in U.S. markets overnight, while the Japanese yen briefly strengthened after a powerful earthquake rocked northern Japan.

Oil extended gains in Asian trading with U.S. West Texas Intermediate (WTI) up 0.73 percent in early deals as the dollar pulled back. Prices surged 4 percent to a three-week high on Monday.

Comments by Russian President Vladimir Putin that raised expectations major oil producing countries could reach a deal to limit output at a meeting next week also spurred the jump in oil prices.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.53 percent, pulled up by a 1.0 percent rally in Australian shares <.AXJO>. Korean shares are also seen gaining in opening trades.

A powerful earthquake that rocked northern Japan on Tuesday appeared to have been taken in stride by investors. The benchmark Nikkei average <.N225> was off a touch and the yen ticked up a shade against the U.S. dollar, although still near a five-month low hit earlier in the session.

The quake generated a tsunami that hit the same northern Pacific coast devastated by a massive quake, tsunami and nuclear disaster in 2011.

"It's too early to tell ... but it appears there's not a lot of damage, so I think the currency move is going to reverse itself," said Stephen Massocca, chief investment officer of Wedbush Equity Management LLC in San Francisco.

"Unless we're missing something here and there's some significant damage," the impact on markets will remain minimal, Massocca said.

U.S. stocks climbed on Monday to close at a record high and European equity markets also moved higher.

Global risk assets, led by U.S. stocks and the dollar, have led gains since Republican Donald Trump's upset election win last week.

Expectations that Trump's administration will usher in expansionary fiscal policies have seen a dramatic selloff in U.S. Treasuries and fuelled a surge in the dollar.

Investor bets on faster-than-expected Federal Reserve rate increases have also put pressure on emerging markets on fears of fund outflows to U.S. dollar-based assets.

The dollar, which rallied over 5 percent against a trade-weighted basket of currencies since Trump's victory, consolidated its gains.

An immediate target for the index is seen at 101.80, a 61.8percent retracement of its seven-year decline from 2001 to 2008. "There is a narrative that there will be strong leadership because Republicans took the White House and the both houses of Congress. But we have to keep in mind that Trump also divided the nation as well as the Republicans," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

Against the yen, Uno added that the dollar's rally is likely to run out of steam around 112.43, a 50 percent retracement of the dollar's decline from 125.86 in June 2015 to 99.00 in June this year.

As the dollar lost steam, the euro traded at$1.0635, bouncing back from near one-year low of $1.0569 hit onFriday.

(Reporting by Saikat Chatterjee; Additional reporting by Hideyuki Sano in Tokyo, Rodrigo Campos and Caroline Valetkevitch in NEW YORK; Editing by Shri Navaratnam)