Asia shares hit one-month peak, bonds bet on ECB support

By Wayne Cole

SYDNEY (Reuters) - Asian shares hopped higher on Thursday after Wall Street strode to new records and bonds rallied on wagers the European Central Bank would extend its asset buying campaign at a policy meeting later in the session.

Australian stocks led the way with a rise of 0.9 (.AXJO) in early trade, while Nikkei futures (NIYc1) pointed to an opening gain of around 1 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4 percent to a one-month top.

The euro seemed little troubled after Moody's changed its outlook on Italy to negative, warning it may downgrade the credit rating if the country's deteriorating economic and debt outlook was not reversed.

The common currency took the news relatively well, easing just a touch to $1.0756 (EUR=), from a top of $1.7068.

Markets have been surprisingly buoyant in the wake of Italy's "No" vote last weekend, in part on hopes for continued support from the ECB which may widen the type of bonds it buys.

Also helping sentiment were reports Italy would step in to rescue troubled bank Monte dei Paschi, which lifted its shares by 9 percent (BMPS.MI).

All of which helped drive down yields on European peripheral debt, with buying spilling over to German bunds and U.S. Treasuries. Yields on the 30-year Treasury fell by almost 6 basis points in the biggest daily decline since later August.

That drop nudged the dollar down a touch to 113.63 yen (JPY=) while the dollar index dipped 0.3 percent (.DXY).

WATCHING WALL ST

Analysts also suspect the ECB may start preparing investors for an eventual tapering of its stimulus, which could underpin the euro even as the Federal Reserve prepares to raise U.S. interest rates next week.

The prospect of higher borrowing costs has certainly not fazed Wall Street, which notched fresh records on expectations the Trump Administration will eventually deliver fiscal stimulus and deregulation.

The Dow (.DJI) ended Wednesday with gains of 1.55 percent, while the S&P 500 (.SPX) climbed 1.32 percent and the Nasdaq (.IXIC) 1.14 percent.

Transport stocks had a barnstorming session with the sector jumping 2.5 percent to an all-time intraday peak.

But biotechnology and pharmaceutical stocks slid after Trump promised in a Time magazine interview that "I’m going to bring down drug prices."

In commodity markets, oil slipped on bearish U.S. petroleum inventory data and doubts that production cuts promised by OPEC and Russia would be deep enough to end a supply overhang. [O/R]

Brent futures (LCOc1) ended Wednesday down 91 cents at $53.02 a barrel. In early trade Thursday, U.S. crude (CLc1) had regained 20 cents of its losses to stand at $49.97.

The story was different in bulk commodities where iron ore and coking coal surged as Chinese demand drove steel prices to their highest since April 2014.

(Reporting by Wayne Cole; Editing by Eric Meijer)