China stocks extend stimulus rally as rest of Asia struggles

Chinese stocks made brisk gains on Wednesday, extending their stimulus-fueled rally to a second day, even as equities in the rest of the region struggled and crude oil retreated from a multi-week high.

The dollar dipped to a fresh one-month low versus the euro and a 2 1/2-year trough to sterling after weak US macroeconomic data overnight boosted the case for a second super-sized interest rate cut at the Federal Reserve's next meeting. Gold renewed an all-time peak.

Mainland Chinese blue chips advanced 2.4% as of 0511 GMT, following a 4.3% jump in the prior session. Hong Kong's Hang Seng climbed 2%, adding to Tuesday's 4.1% surge.

The strong start for Chinese stocks briefly invigorated other regional indexes, but those gains soon fizzled, with Australia's benchmark last flat and South Korea's Kospi declining 0.1%.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.9% higher.

Japan's Nikkei shook off early weakness to rise 0.4%, buoyed mainly by a stabilisation in the yen exchange rate and Wall Street's rise to new record highs overnight.

S&P 500 futures pointed 0.14% lower, however.

Pan-European STOXX 50 futures sank 0.4%.

The People's Bank of China followed its announcement of wide-ranging policy easing on Tuesday with a cut to medium-term lending rates to banks on Wednesday. Beijing's broad-based stimulus - the biggest since the pandemic - also includes steps to boost China's stock market and support for the ailing property sector.

"The debate remains intense on whether there are legs to this rally, though the desk is seeing investors opting to buy/short cover first and ask questions later," UBS analysts wrote in a note to clients.

China's yuan strengthened to a fresh 16-month high, briefly crossing the key 7-per-dollar level in offshore trading, before retreating to be flat at 7.0126 per dollar.

The yen was steady at 143.23 per dollar , after earlier flipping between moderate gains and losses.

Overall, the dollar stayed on the back foot. The euro added 0.14% to $1.11945 after earlier pushing as far as $1.1199 for the first time since Aug. 26.

Sterling edged up to $1.34165, and earlier reached a fresh high since March 2022 at $1.3430.

Overnight, data showed US consumer confidence unexpectedly fell to 98.7 this month from an upwardly revised 105.6 in August. The decline was the largest since August 2021.

The odds on another 50-basis point Fed rate cut at the November meeting jumped to 60.4% from 53% a day earlier, according to CME Group's FedWatch Tool.

Meanwhile, Australia's dollar initially scaled its highest since February of last year at $0.6908 but then slipped back to sit at $0.68935 after inflation figures showed some cooling, potentially setting up an earlier rate cut by the central bank.

"The fall in the underlying measures of inflation is an unexpected and welcomed surprise," said Tony Sycamore, an analyst at IG.

Provided the cooling is replicated in quarterly price data next month, "it sets up a dovish pivot from the RBA," that will lead to a quarter-point rate cut in December, Sycamore said.

Gold rose 0.08% to $2,658.80 per ounce, and earlier marked a new record peak at $2,670.43.

Brent crude futures slipped 13 cents to $75.04 a barrel, but remained close to Tuesday's high of $75.87, a level previously not seen since Sept. 3.

US West Texas Intermediate crude lost 19 cents to $71.37 per barrel.