Asian markets build on trade talks rally, Turkish lira holds up

The Turkish lira rallied against the dollar after the country's central bank hiked interest rates

Asian markets extended their gains Friday on hopes for China-US trade talks, while Turkey's lira held up after a shock hike in the country's interest rate and a dip in US inflation.

After a tumultuous start to the month, investors finally had something to smile about Thursday after US Treasury Secretary Steven Mnuchin invited Chinese officials for fresh talks to avert an all-out trade war.

The news provided some much-needed support, which was improved on later in the day with data showing US consumer price inflation slid in August, easing pressure on the Federal Reserve to tighten borrowing costs.

While the central bank is expected to lift rates next month, the figures lower the chances of another such move before January and provided a boost to equities on Wall Street.

It also gave some breathing space to emerging markets, which have been battered in recent weeks by fears of contagion from crises in Turkey, Argentina and South Africa as a stronger dollar makes it harder for them to repay debts.

"Hope springs eternal for emerging markets anytime the US dollar weakens and (Thursday) was no exception," said Stephen Innes, head of Asia-Pacific trading at OANDA.

"As indeed the stars aligned for emerging markets assets after an astonishing interest rate hike from the Central Bank of Turkey... and an exceedingly soft US (inflation) data."

- Remain cautious -

The CBT ramped up interest rates to 24 percent from 17.5 percent Thursday as it struggles to fight off inflation and boost the lira, which is down around 40 percent this year.

The surprise move -- an indication the CBT wanted to show its independence from strongman President Recep Tayyip Erdogan -- sent the lira surging to 6.01 to the dollar from 6.4 and the currency managed to hold its gains in Asian trade.

Other high-yielding currencies also rallied with India's rupee well off recent record lows and the Indonesian rupiah up after touching a 20-year trough. Mexico's peso and the South African rand were more than one percent higher, while the South Korean won added 0.5 percent and Australian dollar gained 0.3 percent.

The positive sentiment from Thursday continued into the weekend on equity markets, with Tokyo ending 1.2 percent higher and Sydney 0.6 percent up.

Hong Kong rose one percent, adding to the previous day's 2.5 percent rise, while Seoul surged 1.4 percent and Singapore gained 0.9 percent. Wellington, Taipei, Bangkok and Jakarta also enjoyed healthy advances.

Shanghai dipped 0.2 percent, though, while Manila fell 0.7 percent with investors fretting as Super Typhoon Mangkhut barrels towards the northern Philippines.

But while traders are upbeat, Hannah Anderson, global market strategist at JP Morgan Asset Management, warned against being too hopeful, with the US still considering imposing tariffs on $200 billion of Chinese imports.

"Markets need to separate trade rhetoric and trade actions," she said.

"While heated rhetoric may contribute to the shifting investor expectations we have seen this week, there has been no fundamental change in the state of the US-China trade dispute," Anderson added.

"The US is pressing ahead with tariffs... and China's qualitative restrictions on US companies operating in China are starting to show up as a drag in business surveys.

"China and the US both need to clarify what their goals are in this dispute for us to be hopeful about a near-term resolution."

In early European trade London, Paris and Frankfurt each rose 0.5 percent.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: UP 1.2 percent at 23,094.67 (close)

Hong Kong - Hang Seng: UP 1.0 percent at 27,286.41 (close)

Shanghai - Composite: DOWN 0.2 percent at 2,681.64 (close)

London - FTSE 100: UP 0.5 percent at 7,315.19

Euro/dollar: UP at $1.1719 from $1.1689 at 2100 GMT

Pound/dollar: UP at $1.3130 from $1.3105

Dollar/yen: DOWN at 111.83 yen from 111.94 yen

Oil - West Texas Intermediate: UP 16 cents at $68.75 per barrel

Oil - Brent Crude: DOWN two cents at $78.16 per barrel

New York - Dow Jones: UP 0.6 percent at 26,145.99 (close)