Tokyo: Asian shares and the euro gained modestly on Monday, relieved after Greece came a step closer to securing a much-needed bailout fund and avoiding a messy default, although most of the recent optimism appears to have been already priced in.
The Greek parliament approved on Monday the deeply unpopular austerity bill, while serious violence broke out on the streets of Athens and spread across the country, highlighting the tough challenge the government faces to pursue with the reforms.
A rise over the past several weeks have brought many Asian equities markets to levels that require further positive news to break higher, analysts say.
MSCI's broadest index of Asia Pacific shares outside Japan edged up 0.6 percent, but was temporarily down 0.1 percent earlier, reflecting market worries about the many hurdles still facing Greece.
The index hit a six-month high on Thursday on optimism that Greece would clinch a deal on austerity measures, only to pull back on Friday when global lenders demanded that more steps be taken to show Athens' commitment before they agreed on a crucial second bailout.
Japan's Nikkei added 0.7 percent, shrugging off data showing Japan's economy shrank a bigger-than-expected 0.6 percent in October-December.
"Given that the recent risk-taking sentiment has been based on an assumption that a disorderly default will be avoided, the approval confirms that this assumption is still valid and will support sentiment," Junya Tanase, chief currency strategist at JPMorgan Chase in Tokyo.
"As long as other riskier assets respond positively, the euro will also keep a relatively firm tone. But this is just one of the many issues Greece still must solve, and markets will remain jittery over headline risks on Greece," he added.
The euro climbed to a session high of USD 1.3262 on the Greek parliamentary approval and last stood at USD 1.3234, up 0.3 percent.
Greece's bill passed by the parliament on Monday sets out 3.3 billion euros of extra budget cuts for this year alone and also provided for a bond swap to ease Greece's debt burden by cutting the real value of private-sector investors' bond holdings by some 70 percent.
Along with the parliamentary approval, Greece must also find a further 325 million euros of spending cuts and political assurances must be given that the plan will be implemented, in order to gain approval from global lenders.
Euro zone finance ministers are scheduled to meet later this week to discuss giving a seal of approval for the new 130 billion-euro bailout, a lifeline for Greece to ride out a major bond redemption on March 20.
Markets seen capped
Many Asian stocks indexes and currencies have risen in recent weeks to test key resistance levels after the US Federal Reserve pledged to keep interest rates very low for longer than first indicated, on encouraging US economic data and on signs China will likely achieve a soft landing.
As these levels already reflect a high degree of optimism on the global growth and a favourable resolution in Europe, markets now need more positive economic news and concrete steps from Europe to extend gains, analysts say.
A warning to the risk rally was seen in the rise in the CBOE Volatility index VIX, which measures expected volatility in Wall Street's S&P 500 over the next 30 days.
The index shot up to a 3-week high on Friday and closed at 20.79, reversing a recent downtrend.
Some Asian equities markets were capped by profit taking.
Seoul shares trimmed earlier gains to trade slightly higher on Monday, up 0.5 percent.
"The Greek news helped improve investor sentiment earlier, but institutional investors are selling after recent surges," said Bookook Securities analyst Eom Tae-woong. "Whether the market can sustain its advance will depend on how much support is received from foreign investors."
Eyes on debt sales
With markets expected to remain nervous about the developments over the Greek bailout, a slew of debt auctions scheduled this week by Italy, Spain and France will be watched closely as a gauge of investor confidence in the euro zone's high-yielding sovereign debts.
Gold was up 0.4 percent at USD 1,725 an ounce, supported by gains in the euro and equities after the Greek vote.
Oil also recovered, with US March crude up 0.9 percent at USD 99.58 a barrel and Brent March crude futures gaining 0.8 percent to USD 118.21 a barrel.
Asian credit markets were slightly firmer early on Monday, with the spreads on the iTraxx Asia ex-Japan investment grade index narrowing by three basis points from Friday.
First Published: Monday, February 13, 2012, 09:37