TOKYO - Asian shares rose on Thursday on encouraging U.S. economic data, but prices were capped with investors tense ahead of a European Union summit deeply divided on how to tackle the protracted euro zone debt crisis and stop it spreading further.
On Wednesday, European shares rebounded from a steep sell-off and Wall Street stocks logged their largest gain in week after data showed demand for long-lasting U.S. manufactured goods rebounded more than expected in May, a gauge of planned business spending increased and pending home sales rose in May.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose as much as 0.7 percent before easing to trade up around 0.3 percent.
Japan’s Nikkei average also gained as much as 1.4 percent before paring gains to stand up 1 percent.
“It’s completely a reflection of the fact the European markets rebounded a bit yesterday,” said Guy Stear, head of research with Societe Generale in Hong Kong.
“People don’t want to go short into the meeting, that’s why we have a bit of a short-covering bounce. There’s always a potential in Europe for a surprise,” even if there were few signs for any agreement to be reached at the meeting, he said.
The bright sentiment may evaporate later on Thursday when the two-day EU summit starts in Brussels (1300 GMT), with Germany, France and Italy openly divided.
German Chancellor Angela Merkel will pit herself against Paris and Rome, insisting they must put the bloc’s fundamental problems ahead of pleas for emergency action.
Merkel has left the door open to eventual joint debt issuance, but offered no immediate moves to ease the tension, while EU Economic and Monetary Affairs Commissioner Olli Rehn said Europewould work at the summit on short-term steps to relieve market pressure on countries at risk.
EU leaders have met 20 times to try to resolve a crisis that has spread across Europe since it began in Greece in late 2009.
EURO FLOATS AIMLESSLY
The euro edged up 0.2 percent to $1.2488, still near its lowest in more than two weeks at $1.2441 hit on Tuesday.
“European policy makers have a good track record for underwhelming with their response to the banking and sovereign crisis to date,” ANZ Bank said in a research note.
“Spanish and Italian bond yields will remain vulnerable to whatever is delivered. Even if there is a good outcome, the uncertainty surrounding the ability to implement will be high. The Europeans need a strategy to cap bond yields or else another sovereign will be in need of a rescue package,” it said.
If the EU summit disappoints, focus may turn to the European Central Bank to deliver, such as an interest rate cut.
“The ECB meets next week and it is pretty clear the region is in need of some more stimulus as soon as possible,” ANZ said.
Italy’s six-month borrowing costs rose to 2.957 percent at auction on Wednesday, their highest since December. Rome faces a more challenging test of investor appetite when it offers five-year and 10-year debt for up to 5.5 billion euros on Thursday.
U.S. crude futures extended gains from Wednesday, rising 0.3 percent to $80.38 a barrel, but Brent futures scrapped earlier gains to ease 0.1 percent to $93.42 a barrel.
London copper was up 0.2 percent at $7,421.50 a tonne on the upbeat U.S. data, which supported demand for industrial metals sensitive to the economic outlook.
Asian credit markets firmed slightly, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by 3 basis points.
