TOKYO - The dollar fell against the euro on Thursday after subdued US inflation supported the Federal Reserve's case for quantitative easing, while Asian shares rebounded after an eight-day sell-off. Hopes that Ireland will soon see a solution to its debt crisis supported stocks, which have been dogged by uncertainty about how Europe would tackle Ireland's debt woes and fears that China may take aggressive steps to curb inflation. Such factors had helped exacerbate a recent sell-off in risky assets and a rally in the dollar that traders say was partly due to investors trimming their bets before market liquidity dwindles toward the year-end. Major European shares (.FTEU3) rose 0.4 per cent in early trade, following gains in Asia. The euro and Asian equities gained some respite after Ireland agreed to work with EU and IMF officials on steps to shore up its shattered banking sector. The MSCI index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 1 percent to 461.43. It had slid for eight straight sessions up to Wednesday, shedding 5.7 per cent. "After some signs of overheating there had been a bit of a pullback on concerns about potential interest rate rises in emerging markets," said Mitsushige Akino, chief fund manger for Ichiyoshi Investment Management in Tokyo, referring to Asian equities. "But at the base there is QE2, with the amount of money swelling and heading toward risky assets," Akino said, adding that investors were likely to continue to look to buy Asian equities when they dip. Shanghai shares rose 0.9 percent (.SSEC) and Hong Kong equities gained 1.7 percent (.HSI) as investors picked up beaten down shares, although sentiment remained fragile as worries persisted that China may adopt steps to curb inflation including more aggressive hikes in key interest rates. Japanese equities outperformed their Asian peers, with the Nikkei (.N225) up 2.1 per cent to a five-month high of 10,013.63. Market players said short-covering of Japanese financial shares by overseas funds helped spur similar moves in other sectors, with some saying the buying of Japanese equities was led by European funds balancing their positions ahead of year-end book closings. The yen's recent dip against the dollar also helped boost Japan's benchmark index. "Foreign fund operators were unloading Japanese government bonds positions while buying back Nikkei futures, driving the overall upward move in stocks," said Takashi Ohba, a senior strategist at Okasan Securities. The dollar held steady at 83.21 yen, near a six-week high of 83.60 yen hit on Tuesday on trading platform EBS. The euro rose 0.5 per cent to $1.3595, pulling away from Tuesday's seven-week trough of $1.3446. "I suspect Ireland will take some sort of aid package this week or next week and that'll probably see the euro make up some gains in the near term," said Joseph Capurso, strategist at Commonwealth Bank. The dollar index, which measures its value against a basket of major currencies, slipped to 78.745 (.DXY), having retreated from Tuesday's seven-week high of 79.461. The dollar's retreat followed news that the US core consumer prices rose just 0.6 percent in October from a year earlier, the smallest rise in records kept since 1957. Australian shares rose 0.3 per cent (.AXJO) as major miners BHP Billiton (BHP.AX) and Rio Tinto (RIO.AX) rebounded with a recovery in copper prices and Chinese stock markets. Spot gold rose 1.2 per cent to 1,352.50, supported by the dollar's dip. US 10-year Treasury note futures slipped 8/32 to 124-20/32. Lead 10-year Japanese government bond futures fell 0.51 point to 141.45.
