Asia Stocks Week Ahead - Market rebound seen alive, eyes on Fed

By Ian Chua

HONG KONG (Reuters) - Asian stocks should push higher in the coming week as investors fret less over the outlook for the U.S. economy, with all eyes on the U.S. Federal Reserve's policy meeting on Tuesday where markets are pricing in a quarter-point rate cut.

"To some extent, the 25 basis point rate cut is already priced into the markets, but we're still in the recovery phase for Asian markets after the sharp decline in November," said Hirokazu Yuihama, regional strategist at Daiwa Institute of Research.

Yuihama said rate-sensitive markets such as Hong Kong and

Singapore will benefit most from lower U.S. rates, but Taiwan, which is heavily dependent on U.S. demand for its products, may suffer in the next couple of months as the U.S. economy slows.

For the first week of December, MSCI's measure of Asia Pacific stocks excluding Japan rose nearly 2 percent, rebounding from an 8.4 percent slump in November.

The U.S. non-farm payrolls data on Friday showed a gain of 94,000 jobs in November, after an increase of 166,000 payrolls in October, in line with expectations.

** IN JAPAN

Stocks are seen extending gains as worries about the U.S. economy continue to wane.

"The market will likely be relatively strong as the subprime problems are calming down," said Yosuke Shimizu, head of investment centre at Monex Inc. "The Nikkei's downside will likely cement around 15,800."

Investors will likely pick up high-tech exporters, encouraged by a softening yen, and beaten-down issues such as trading houses, he said, adding the Nikkei should move between 15,800 and 16,500.

** IN KOREA

Analysts expect the KOSPI to drift sideways after a two-week rebound, with investors holding off taking new positions ahead of the Dec. 19 presidential election and persistent worries about the U.S. economy.

"The recent two-week advance had reflected expectations for a

U.S. interest rate cut and government steps on mortgage borrowers, but no one believes the U.S. economy is doing well," said Kim Hak-kyoon, an analyst of Korea Investment & Securities.

** IN HONG KONG

Many analysts are betting Hong Kong's accelerating momentum could put the market above a 30,000 resistance level. Investors are likely to drive shares up before the Fed meeting, they say, then cash in afterwards.

"Quite a lot of news has already been factored in," said

Howard Gorges, vice chairman at South China Brokerage. "There could be a bit of profit-taking to be had."

** IN CHINA

The Shanghai Composite Index is likely to hover around current levels, with confidence slowly returning as the market recovers from a drubbing in November.

"The index is establishing a bottom at around 4,800 points but a strong rally is not sustainable," said Zhang Yang, analyst at Oriental Securities Co.

** IN AUSTRALIA/NZ

Australian shares may extend their uptrend, buoyed by expectations of a U.S. rate cut, though gains are likely to be tentative given persistent uncertainties about the health of the U.S. economy.

"People will soon see that despite the fact the Fed is cutting rates and that the government is promoting remedies to mitigate damage from the subprime fallout, we're still faced with slower growth in 2008 than people had expected," said Angus Gluskie, portfolio manager at White Funds Management.

** IN TAIWAN

Further gains are seen for stocks, although the market is seen capped at the 9,000 level.

"The U.S. market has stabilised from the subprime turmoil recently. That's certainly positive for Taiwan stocks," said Kevin Li, a vice president of Shin Kong Securities Investment with T$60 billion ($1.9 billion) client assets under management.

** IN SOUTHEAST ASIA

Regional stock markets are set to remain supported with investors comforted by U.S. moves to address the housing problems and ahead of the Fed's rate decision.

"Buying interest in regional stocks should continue next week amid expectations that the U.S. FOMC meeting should cut interest rates by at least 25 basis points," Thanachart Securities strategist Pichai Lertsupongkit said.

** IN SOUTH ASIA

India's main stock index could climb to a new high if the Fed surprised with an aggressive 50 bp rate cut.

"If there's a 0.25 percent cut, I think the market has already priced that in," said Neeraj Dewan, director at Quantum Securities in New Delhi. "But if there's a cut of 0.5 percent, we will see a further upside."

In the unlikely event of no rate move, Dewan said the market may correct by some 10 percent.