SINGAPORE, Sept 22 Reuters - Stocks lifted support and U.S. futures lifted in relief on Wednesday after developer China Evergrande said it would pay some bond interest to investors on Thursday after teetering fears of an imminent and messy collapse that had spooked investors.
The news also helped the risk-sensitive Australian Dollar, though anticipation that the Federal Reserve may move a step closer to tapering later on Wednesday kept a lid on gains and the mood.
Markets in Taiwan and China reopened smaller after a two-day break, with a sharp sell-off around the world triggered by concerns about Evergrande's predicament, but were soon paring losses as the payment promise buoyed the mood.
MSCI's broadest index of Asia-Pacific shares outside Japan was $0.3% lower mid-morning. The Nikkei of Japan fell 0.6%, while Australian shares rose 0.7%. IAS futures reversed an early loss to trade slightly higher after Evergrande pledged to pay the scheduled coupon on a yuan bond that will be paid on Thursday. after the announcement, secured assets such as the yen and Treasuries were also sold.
Evergrande is still due to pay $83.5 million in interest on a separate dollar bond, but the signal that it has at least some ready cash for creditors seems to have cheered investors.
And that provides some reassurance, said Ryan Felsman, senior economist at brokerage CommSec. We will see definitely improvement in volatility. He said it looks like we're going to see a little bit of risk rally.
Globally, markets had already started to calm down as analysts downplayed the threat of Evergrande's troubles becoming a Lehman moment and setting off a financial crisis.
Overnight on Wall Street, the S&P 500 fared much worse than flat to sit about 4% below a record peak made early in the month.
Evergrande's distress is already spreading to other Chinese developers, but investors are anticipating that the global fallout can be contained and concern is shifting to worrying but more gradual economic consequences.
The Evergrande debacle is further stoking concern over the fallout from China's new crackdown, analysts at Rabobank said in a note to clients, pointing out new rules on everything from online gaming to developers debt levels.
As a consequence, Evergrande can perhaps be seen not so much as a potential crisis trigger but rather a symptom of a broader policy shift which threatens Chinese growth as politics dominate economic considerations. In the currency markets, the Australian dollar jumped 0.3% to $0.7253 after Evergrande's news and the yen handed back small early gains on the Euro and the Dollar.
Moves were stable today ahead of Wednesday's Fed meeting, however, and the dollar was capped against the euro at $1.1727. The 10-year Treasury yield lifted from a low in the morning of 1.3450% to as high as 1.3140%.
Most analysts believe Fed will not go into detail about its tapering plans but say risks lie in board members' dot plot of rates projections.
Even though a tapering announcement is not expected, the dot plot may bring a hawkish surprise and require Powell to push back and deliver dovish in the press conference, said Tapas Strickland, director of the National Australia BankAustralia Bank's economics and markets.
The final decision of the Fed's meeting is announced at 1800 GMT with a news conference half an hour later.
In commodities, copper hovered near a month low and oil prices found support from a relaxed inbound travel rules, likely to boost airline fuel demand.
Brent crude futures were last up 0.9% at $75.02 a barrel and U.S. crude rose 1% to $71.18. USD gold has been supported at $1,776 an ounce.