Stocks, dollar recover as markets try to move past Trump’s policy stumble

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People walk past an electronic board showing stock prices outside a brokerage at a business district in Tokyo

By Nichola Saminather

SINGAPORE (Reuters) – Asian stocks pulled ahead on Tuesday after Wall Street steadied and the dollar bounced from a four-month-low, as concern over Donald Trump’s setback on his healthcare reform bill gave away to tentative hopes for the U.S. President’s planned stimulus policies.

MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> added 0.3 percent in early trade.

Japan’s Nikkei <.N225> jumped 1.1 percent, its biggest one-day gain in more than two weeks, while Australian stocks <.AXJO> advanced 0.9 percent.

South Korean stocks <.KS11> climbed 0.4 percent after data showed the domestic economy grew at a slightly faster pace than initially thought in the fourth quarter of 2016, supported by strong construction activity.

Overnight, the S&P 500 <.SPX> and the Dow Jones Industrial Average <.DJIA> closed lower but had narrowed their losses from earlier in the session, when both hit near-six-week lows. The Nasdaq <.IXIC> ended higher.

Risk appetite had evaporated after Trump’s failure to garner enough support last week to pass a bill repealing the Affordable Care Act, former President Barack Obama’s signature health care bill, even with a Republican-controlled Congress.

That blow for Trump spooked global risk assets on concerns about the president’s ability to enact stimulus policies. The MSCI World index <.MIWD00000PUS>, which had stumbled last week, managed to recover, as confidence returned that the Trump administration will corral Congressional support for other pro-growth policies.

“Markets appear reluctant to take the Trump disappointment too much further at this stage,” Ric Spooner, chief market analyst at CMC Markets in Sydney, wrote in a note.

“With U.S. economic growth showing signs of improvement and the (Federal Reserve) clearly embarked on a monetary tightening cycle, the significant correction that has already occurred in bonds and the U.S. dollar may already reflect an adequate wind-back of the market’s Trump exuberance.”

The U.S. 10-year bond yield <US10YT=RR>, which hit a one-month low on Monday, recovered to trade higher at 2.3782 on Tuesday.

The dollar added 0.1 percent to 110.75 yen <JPY=D4> after touching its lowest level since November on Monday.

The dollar index <.DXY> inched up to 99.233 after slumping to a 4-1/2-month low on Monday.

The euro <EUR=EBS> was steady at $1.08655 on Tuesday, after touching its highest level since November on Monday.

In commodities, the return of risk appetite helped lift oil from a level close to the 3-1/2-month low seen last week, despite lingering concerns about whether producers will extend an OPEC-led output cut beyond the end of June to ease a global glut.

U.S. crude <CLc1> gained 0.5 percent to $47.96 a barrel, after dropping as much as 1.9 percent on Monday.

Gold <XAU=> was little changed at 1,253.06 early on Tuesday, after pulling back from the one-month-high hit earlier on Monday.

(Reporting by Nichola Saminather; Editing by Shri Navaratnam)

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