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Asian stocks eke out modest gains over Japan elections

Monday, 22 Jul 2013 | 3:06 AM ET

Asian equities were marginally higher on Monday after Japanese Prime Minister Shinzo Abe's landslide victory in Sunday's upper house elections signaled a green light for future monetary stimulus.

The Nikkei and South Korean equities added half a percent each while Australia's S&P ASX 200 index pared gains after hitting a one-month high. The Shanghai Composite erased earlier losses to move off a one-week low.

(Read more: What's important in Asia this week)

  Name Price   Change %Change
NIKKEI
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HSI
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ASX 200
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SHANGHAI
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KOSPI
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CNBC 100
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Nikkei above 14,600

Shinzo Abe's biggest hurdle: His own party
Izumi Devalier, Japan Economist at HSBC thinks Shinzo Abe is in a good position to push forward reforms but explains that the biggest hurdle he will have is reining in his own party.

Shino Abe's electoral victory over the weekend means that his ruling Liberal Democratic Party (LDP) will now have control of both chambers of parliament and a mandate to press ahead with difficult economic reforms.

"You have to be very skeptical," said Richard Jerram, chief economist at Bank of Singapore. "We've had every prime minister in the past 20 years, and there have been about 15, that have had a structural reform program. They've all promised and not delivered on that front."

(Read more: 'All systems go' after Abe's big election win?)

Meanwhile, volatility in the Japanese currency capped gains on the benchmark index. The greenback fell below the key 100-yen level, leading to a mixed performance in exporter stocks. Sumitomo Heavy Industries jumped 3 percent, but Mitsubishi Heavy Industries fell 4 percent.

Shanghai above 2,000

China's benchmark index entered positive territory after falling to its lowest levels in over a week. Banking stocks recovered some ground with mid-sized lenders China Merchants Bank and Shanghai Pudong Development Bank paring losses following an earlier 2 percent fall.

The sell-off comes after the People's Bank of China (PBOC) announced its biggest step yet towards financial reform on Friday. The central bank scrapped controls on lending rates, which now allows banks to set their own rates.

(Read more: Beijing loosens gripon rates - will it matter?)

Could PBOC rate move mean the end of bank profits?
Liberalization of China's financial sector is expected to put significant pressure on Chinese banks profit growth, Stephen Schwartz, Chief Economist for Asia, BBVA, describes the impact on investors.

"The issue the market is concerned with is that in the future, banks could start a price war and try and better each other for accounts/customers worth fighting for. The prospect of a more competitive landscape is causing modest selling," wrote Chris Weston, chief market strategist at IG in a note.

Sydney ends below 5,000

Australia's benchmark index pared gains after rising above 5,012 points to its highest level since May 24. Still, gold miners outperformed the broader market after spot gold prices hit a new one-month high. Medusa Mining surged 20 percent while Perseus Mining increased 15 percent.

Optimism over China's interest rate reform led to a rally in banking stocks. Macquarie Group led gains by 3.3 percent.

(Read more: Could banks get banned from trading commodities?)

Kospi up 0.5%

Losses in South Korean technology stocks weighed on the benchmark index as a sell-off in their U.S counterparts on Friday tempered potential gains from a stronger Japanese currency.Memory chip maker SK Hynix declined 1.4 percent.

Oil refiners rallied after U.S. oil futures traded above the global crude benchmark for the first time since October 2010. Both GS Holdings and SK Innovation rose over 1 percent each.

By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC

  Price   Change %Change
NIKKEI
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ASX 200
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S&P 500
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JPY/USD
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SHANGHAI
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