Asia markets close higher as Australia, India central bank calls bolster shares

Markets in Asia closed higher on Tuesday, taking a generally positive view of comments from U.S. Federal Reserve chief Janet Yellen and from on-hold calls from central banks in Australia and India.

The Nikkei 225 wavered between gains and losses before closing up 95.42 points, or 0.58 percent, at 16,675.45, getting a boost from a slightly weaker yen. On Monday, the index had closed down 0.37 percent.

Australia's ASX 200 pared some of its morning gains following a largely expected central bank decision from the Reserve Bank of Australia (RBA); the benchmark index closed up 10.57 points, or 0.2 percent, at 5,371.00, off a session high of 5,392.50.

Chinese mainland markets erased most of their morning losses, with the Shanghai composite finishing nearly flat at 2,936.20, and the Shenzhen composite adding 4.75 points, or 0.24 percent, to 1,924.87. In Hong Kong, the Hang Seng index gained 1.3 percent as of 3:01 p.m. HK/SIN time.

In South Korea, the Kospi closed up 25.79 points, or 1.3 percent, at 2,011.63, as trade resumed after the market was shut for memorial day on Monday.

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In Australia, the central bank kept its cash rate unchanged at 1.75 percent, largely in line with market expectations. The Australian dollar spiked after the decision, with the Aussie trading at $0.7433 as of 2:35 p.m. HK/SIN, compared with around $0.7370 before the statement.

The RBA's comments spurred the Australian dollar higher, Anthony Darvall, senior dealer at spreadbettor easyMarkets, said in a note Tuesday.

"The lack of concern about the Australian dollar exchange rate has let the bulls take control and the Australian-dollar shorts have been squeezed," he said. Previously, the RBA has attempted to jawbone the currency lower.

In its policy statement, the RBA said overall growth is continuing in the country, despite a "very large decline" in business investment. The labor market indicators have been more mixed of late, but are consistent with continued expansion of employment in the near term, the RBA said.

Shane Oliver, head of investment strategy and chief economist at AMP Capital, said the statement was "fairly neutral in terms of signaling any guidance regarding the direction of interest rates going forward [and that it was] really just being a description of recent developments."

But he still expects the RBA will cut rates two more times later this year.

In India, the market reaction to the Reserve Bank of India (RBI) keeping its monetary policy unchanged was muted.

The Indian rupee was trading at 66.75 to the dollar at 3:32 p.m. HK/SIN, compared with around 66.82 before the decision. Indian stocks also traded higher, with the Nifty 50 up 0.55 percent and the Sensex adding 0.48 percent as of 2:51 p.m. HK/SIN.

The RBI cited concerns about the economic outlook for remaining on hold.

"While macroeconomic stability is returning to some emerging market economies, geo-political tensions and high volatility in financial markets impede the resumption of momentum, and the outlook remains challenging," the RBI said in its policy statement. The Indian central bank added that surprise in April's higher inflation reading made the future trajectory of consumer prices "somewhat more uncertain."

The future of RBI Governor Raghuram Rajan dogged the build up to the monetary policy announcement on Tuesday. The central banker, whose tenure is up for renewal in September, has come under political fire, particularly from an influential member of parliament from the ruling Bharatiya Janata Party.

Dominic Dudley | Pacific Press | LightRocket | Getty Images

In the currency market, the dollar hovered around the 94 mark during Asian hours, trading at 93.96 against a basket of currencies as of 2:53 p.m. HK/SIN.

The dollar index had slipped under 94 from levels above 95 on Friday, after the U.S. nonfarm payrolls report for May came in much weaker than expected, spurring analysts to dial back expectations on whether the U.S. Federal Reserve would increase interest rates.

The dollar weakness has bolstered other parts of the market.

"The collapse in the dollar has seen commodity prices surge ... all of this points to building global inflation," said Angus Nicholson, a market analyst at spreadbettor IG. Commodity prices are usually denominated in dollars.

Major Australian miners extended Monday's gains, helped by a weaker dollar. Shares of Rio Tinto rose 1.81 percent, Fortescue added 2.49 percent and BHP Billiton was higher by 2.91 percent, extending gains of between 3.72-4.22 percent on Monday.

But Nicholson noted that the weaker dollar's impact on commodity prices may itself spur the Fed to action. "The Fed has been at pains to emphasize their concerns over a blowout in inflation, if rates are left too low for too long, and this validates why, they may still hike rates even when the economy still looks quite weak," Nicholson added.

Fed chair Janet Yellen spoke at an event in Philadelphia on Monday, where she struck a generally positive tone on the U.S. economy, warning markets against overreacting to the disappointing jobs number. She insisted that the Fed needed to raise rates, but stepped back from giving a time frame for hikes.

Providing a fillip to Japan shares, the Japanese yen weakened overnight, with the dollar/yen pair trading at 107.57 in the afternoon Asia time on Tuesday, compared with levels as low as 106.35 on Monday.

Major exporters in Japan closed mixed, with Toyota shares down 0.23 percent, Honda up 0.62 percent and Sony adding 0.55 percent. A weaker yen is usually a positive for exporters as it increases their overseas profits when converted into local currency.

Oil prices were slightly lower on Tuesday afternoon Asia time, but hovered near the psychologically key $50 level. U.S. crude was down 0.04 percent at $49.67 a barrel. Global benchmark Brent was off by 0.12 percent at $50.49 as of 2:56 p.m. HK/SIN.

Energy plays in the region ended mixed, with Santos shares up 4.05 percent, Oil Search up 2.41 percent and Inpex gaining 4.39 percent. Chinese mainland oil plays were mostly down, with shares of Sinopec off by 0.32 percent.

In company news, shares of Samsung SDS reversed losses of near 0.7 percent to close up 1.01 percent, after Reuters said the company is considering spinning off its logistics process outsourcing business. The company will also consider acquisitions and new businesses to increase external customer sales, said Reuters.

U.S. stocks finished higher Monday, with the energy sector leading due to higher oil prices. The Dow Jones industrial average ended up 0.64 percent, the S&P 500 added 0.49 percent and the Nasdaq composite was up by 0.53 percent.