Nikkei surges 2.43% on report of more flexible Chinese yuan

19:07, June 21, 2010      

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Tokyo stocks surged Monday with Japan's key Nikkei gaining 2.43 percent and hitting one-month closing high as China's decision to allow the yuan to move more flexibly fueled optimism that demand from Japan's biggest export market will continue to expand and investor sentiment rose on the implications for the global economy.

The 225-issue Nikkei Stock Average advanced 242.99 points, or 2. 43 percent, from Friday to 10,238.01, marking its highest closing level since May 18.

Meanwhile, the broader Topix index of all First Section issues on the Tokyo Stock Exchange added 17.85 points, or 2.02 percent, to 902.49.

China's central bank maintained that it would keep intact the basic stability of the yuan -- keeping the currency at a reasonable and balanced level to support stability in the economy and that any adjustment would be gradual. Local brokers said the news, which some thought would send the yen higher, had been met well by the market and the positive effects the move could have on the global economy.

"First, the sharply stronger yen that some investors feared would result from this hasn't materialized," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

"But even more than this, the move suggests sustainable economic growth for China, which is boosting shares pretty much across the board," he said.

China-related issues gained on Monday and the market was optimistic that a stronger yuan would boost China's buying power, market players said, and adding that robust performances of other Asian markets, especially Shanghai, added to the upbeat mood.

Some strategists noted, however, that an appreciation of the yuan, although boosting buying power, could hurt Chinese exports if the currency rises too sharply. However the majority of market players took the central bank's plan of a "gradual" adjustment at face value as the central bank had ruled-out a one-time reevaluation, and the long-term implications of the possible rise contributed to the market's confidence as euro zone fears begin to subside.
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