By Ankur Banerjee
SINGAPORE, Dec 26 (Reuters) - Asian stocks crept higher on Tuesday and the dollar lurked near a five-month low as cooling U.S. inflation bolstered bets the Federal Reserve would cut interest rates early next year.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was 0.48% higher and is on course for a nearly 2% gain this year, after dropping 20% in 2022.
Japan's Nikkei .N225 gained 0.16% and remains the best performing major Asian stock market with a 27% rise in 2023. E-mini futures for the S&P 500 EScv1 rose 0.15%.
"In a way, markets could not have asked for better news from the continued easing of the core PCE deflator in November," said Nicholas Chia, Asia macro strategist at Standard Chartered.
"Thin liquidity conditions are likely to exacerbate the so-called 'Santa Claus rally' in equities ahead of the turn of the year," Chia added.
Stock investors have cheered recent signs from the Fed on the outlook for rates. At the conclusion of its policy meeting on Dec. 13, the Fed signalled that it had reached the end of its tightening cycle and opened the door to interest rate cuts in the coming year.
"The Federal Reserve has aggressively changed its rhetoric to engineer a significant easing of financial conditions," Citi analysts said in a note.
"A combination of slower core inflation and rising recession concerns led Fed officials to shift rhetoric away from a commitment to fight inflation with higher-for-longer rates and toward reassuring markets that they will not 'hang on' to higher rates for too long."
In Asia, China stocks .SSEC fell 0.47%, weighed down by semiconductor shares, while gaming stocks stabilised after a slew of companies announced share buyback plans. Hong Kong's Hang Seng Index .HSI remained closed.
In the currency market, moves were muted in holiday thinned trade, with the dollar index =USD at 101.61, not far from the five-month low of 101.42 it touched on Friday. The index is down 1.8% for the year, on course to snap its two-year winning run.
The yen JPY=EBS meanwhile was steady at 142.27 per dollar. The prospect of the Bank of Japan (BOJ) soon ending its ultra-easy policy has helped lift the currency in recent weeks. FRX/
The Asian currency is up 4% this month, on course for second straight month of gains against the dollar. But for the year, the yen remains down 7.8% against the greenback.
Bank of Japan Governor Kazuo Ueda said on Monday the likelihood of achieving the central bank's inflation target was "gradually rising" and it would consider changing policy if prospects of sustainably achieving the 2% target increase "sufficiently".
In commodities, U.S. WTI crude futures CLc1 rose 0.33% to $73.80 per barrel and Brent futures LCOc1 were at $79.33, down 0.08% on the day. O/R
Spot gold XAU= added 0.5% to $2,064.02 an ounce. GOL/
World FX rates YTD http://tmsnrt.rs/2egbfVh
Asian stock markets https://tmsnrt.rs/2zpUAr4
(Reporting by Ankur Banerjee; Editing by Jamie Freed)
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