HONG KONG - Asian stocks edged higher on Monday on growing speculation the Federal Reserve will have to buy bonds sooner rather than later to bolster the sagging economy, which is keeping the US dollar under pressure. Major European stock futures were up as much as 1.5 per cent, reacting positively to a late session rally on Wall Street on Friday that saw major indexes cut earlier losses. A steady flow of downbeat US economic data, including disappointingly large job losses in July, has fueled expectations the Fed will have to take bolder action to stimulate growth, even with interest rates already near zero. The central bank may signal a move is coming after a meeting on Tuesday. The prospect of the Fed increasing the amount of cash floating around the financial system through purchases of US bonds has been dragging on the dollar, but potentially stronger economic stimulus helped to buoy Asian equities on Monday. "The market seems to be anticipating a shift in Fed policy toward renewed quantitative easing," said Andrew Pease, investment strategist, Asia Pacific for Russell Investments in Sydney. "Against this backdrop, the relative resilience of Asia is probably a function of the better structural economic underpinnings in Asia ex Japan and perhaps some confidence that more aggressive QE by the Fed will eventually succeed." The main event of the week will be the Fed's message on monetary policy on Tuesday. In addition, Chinese economic data this week are expected to confirm growth has plateaued for now, though exports and imports will still probably rise at a double-digit annual pace. The MSCI index of Asia Pacific ex-Japan equities rose 0.6 per cent (.MIAPJ0000PUS) to its highest since May 4. Since June, the index has advanced 12 per cent, exceeding an 8 per cent gain on the all-country world index (.MIWD00000PUS) and a 5 per cent rise in the US S&P 500 index (.SPX). Strength in emerging Asian equities is all the more striking since it has coincided with equity outperformance, a tell-tale sign that investors are focused on the region's relatively solid long-term growth prospects and healthier financial systems. Japan's Nikkei share average fell 0.7 per cent (.N225), however, as investors focused on the negative impact of a stronger yen on exporters. Electronics components maker Kyocera Corp stock (6971.T) fell 2 per cent and was the biggest drag on the index.
