Asia stocks wary before BOJ, oil extends rally

SYDNEY, Jan 29 (Reuters) – Asian shares crept cautiously higher on Friday as oil cobbled together another session of gains and markets wagered U.S. interest rates would not be rising much this year, if at all.

Speculation is also rife the Bank of Japan will have to add yet more stimulus, though many doubt it will come at Friday’s first policy meeting of the year.

Sources told Reuters the decision could be a close one but that policymakers were wary of using their diminishing options to counter what they see as factors beyond the BOJ’s control.

"All eyes will be on the BOJ at the moment. Policymakers now have the difficult decision of steering into the wind and taking decisive action amid global instability, or sticking to the program and risking further defamation in the court of public opinion," said Martin King, co-managing director at Tyton Capital Advisors.

Japanese investors seemed braced for disappointment and the Nikkei lost early gains to trade 0.3 percent lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan managed to add 0.3 percent, aided by a tentative bounce in China. The Shanghai benchmark rose 1.6 percent in early action, but remains sharply lower for the week.

Oil prices extended their rare rally after Russian energy minister Alexander Novak and a senior Gulf OPEC delegate suggested that major oil producers may pare production.

It remained unclear whether a rumoured deal to cut output by up to 5 percent would be struck anytime soon.

U.S. crude was up a further 15 cents at $33.37 per barrel, while Brent futures firmed 11 cents to $34.00.

The semblance of stability in oil combined with some solid company results to lift Wall Street. The Dow gained 0.79 percent, while the S&P 500 added 0.55 percent and the Nasdaq Composite 0.86 percent.

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Facebook surged 15.5 percent in its biggest one-day leap since 2013 after smashing expectations, while Alphabet climbed 4.28 percent.

Microsoft rose 4.5 percent in late trading after beating forecasts, but Amazon slumped 12 percent as profits missed analysts’ estimates by a wide margin.

Economic news disappointed as U.S. durable goods dived 5.1 percent, the biggest decline in 16 months and just the latest indicator to undershoot forecasts.

The saving grace for stocks was that debt markets reacted by further lowering the expected path of hikes from the Federal Reserve. Fed fund futures <0#FF:> imply a rate of 59 basis points by year end, compared to 90 basis points a month ago.

"We saw weakness in more U.S. durable goods, but one can track that directly to softness in manufacturing and oil, which is distinct from the strength across the service sector," said David Cannington, a senior economist at ANZ.

"Nonetheless, it strengthens the hand of those pointing to the Fed doing less, and questions the case of the USD bulls."

The dollar was steady against a basket of currencies at 98.606. The euro held at $1.0933 and well away from the $1.0786 low hit at the start of the week.

The dollar was little changed on the yen at around 118.62 as investors counted down to the BOJ announcement. (Reporting by Wayne Cole; Editing by Shri Navaratnam and Sam Holmes)

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