Asia stocks rally on fiscal cliff optimism; Nikkei ends up 2.4%

Investing.com - Asian stock markets rallied to multi-month highs on Wednesday, as signs that U.S. political leaders were making progress on a budget deal to avoid the looming fiscal cliff crisis boosted appetite for risk-sensitive assets.

Shares in Japan extended gains from the previous session to close above the psychologically-important 10,000-level, amid growing expectations for more aggressive monetary easing measures by the Bank of Japan.

During late Asian trade, Hong Kong's Hang Seng Index added 0.4%, Australia’s ASX/200 Index settled 0.5% higher, while Japan’s Nikkei 225 Index ended up 2.4%.

Market sentiment was boosted by hopes that an agreement to avoid the U.S. fiscal cliff can be reached ahead of the January 1 deadline.

Negotiations aimed at avoiding the automatic tax hikes and spending cuts which investors fear could derail the U.S. recovery, have intensified in recent days, raising hopes that U.S. lawmakers will reach an agreement by the end of the year.

In Tokyo, the Nikkei climbed to the highest level since late March, as exporters advanced on the back of a weakening yen, which traded near a 20-month low against the U.S. dollar.

Investor focus turned to the upcoming BoJ policy meeting on Thursday, as expectations that the central bank will implement further easing measures grew following the Liberal Democratic Party’s landslide victory in elections on Sunday.

LDP leader Shinzo Abe has called for unlimited easing by the central bank in order to meet a 2% inflation target and spur growth in the recession-hit economy.

Shares in consumer electronics makers Sony and Canon rose 2% and 6.5% respectively, while automakers Honda and Nissan added 6.1% and 5.5% apiece.

Japanese megabanks contributed to gains, with Mitsubishi UFJ Financial Group surging 6.1%, Sumitomo Mitsui Financial Group climbing 4.2% and Mizuho Financial Group tacking on 4.3%.

The Nikkei has rallied nearly 17% in the past four weeks, with exporters amongst the most notable gainers, as ongoing weakness in the yen boosted the outlook for export earnings.

Meanwhile, shares in Hong Kong advanced to the highest level since August 2011, as hopes for a deal to avoid the U.S. fiscal cliff fuelled appetite for riskier assets.

Gains in the China banking sector provided support, with China Construction Bank shares adding 0.7%, Industrial and Commercial Bank of China rising 0.6% and Bank of China tacking on 0.5%.

HSBC shares climbed 0.7%. Shares of Europe’s largest lender command a 15% weighting on the Hong Kong benchmark, making it the single largest constituent on the index.

On the downside, Esprit Holdings saw shares slide 4.9% after issuing a profit warning due to worse-than-expected operating results for the July-September period.

Elsewhere, in Australia, the benchmark ASX/200 Index ended at a 17-month high, supported by strong gains in global miners.

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BHP Billiton and Rio Tinto saw shares climb 1.1% and 1.6% respectively, while iron ore maker Fortescue Metals Group added 1.3%.

Shares in surf-wear retailer Billabong plunged 13.2% after the company slashed its annual earnings guidance. The company reportedly received a fresh takeover bid Monday worth AUD526.8 million, lower than previous bids from private equity groups TPG and Bain Capital.

Looking ahead, European stock market futures were mostly higher, as investors eyed ongoing U.S. budget talks.

The EURO STOXX 50 futures pointed to a gain of 0.25% at the open, France’s CAC 40 futures added 0.25%, London’s FTSE 100 futures eased up 0.25%, while Germany's DAX futures pointed to a gain of 0.2% at the open.

Later Wednesday, the Ifo Institute was to release a report on German business climate, while the U.S. was to publish government data on building permits, housing starts and crude oil stockpiles.