Aug. 1 - Asian share markets up on debt deal, but focus will be on possible U.S debt downgrade and longer term fiscal reform in Europe and the U.S. Arnold Gay reports.
SOUNDBITE (English) U.S. PRESIDENT BARACK OBAMA SAYING: "I want to announce that the leaders of both parties, in both chambers, have reached an agreement that will reduce the deficit and avoid default -- a default that would have had a devastating effect on our economy." Asian markets, already trading higher on hints of an imminent deal, latched onto Obama's confirmation of agreement, soaring over 1.5 percent in relief trading. Gold fell by one percent as investors cut their safe-haven trades. The yen eased back from Friday's high of 76.72, boosting the shares of Japan's exporters. The Nikkei 225 spent most of the trading day above the 10,000 level, though it eventually below the mark. HSBC led gains in Hong Kong, after Europe's largest bank said it would sell nearly half of its underperforming U.S. branch network. Other financials followed suit, with the benchmark Hang Seng up 1.5 percent in early afternoon trade. Investors are still guarded though, since the plan may not necessarily satisfy rating agencies like Standard & Poor's enough to keep the U.S. triple-A debt rating. This was clearly seen in the U.S. dollar index, which was largely unchanged Monday (Aug 01), reflecting deep-seated fears about debt problems in the U.S. and Europe. The euro has a heavy weighting in the basket of six currencies used to calculate the dollar index. Societe Generale's Marc Lansonneur believes it's crucial to prevent the debt crisis from spreading. SOUNDBITE (English) SOCIETE GENERALE'S REGIONAL HEAD OF INVESTMENT TEAMS & MARKET SOLUTIONS, MARC LANSONNEUR, SAYING: "There is already (an) issue in Europe on the debt, as you know, which are unsolved. And more issue in U.S. debt market will increase the euro zone threat; also what's next? I mean, you know, you have Japan, which is not in good shape from a government debt point of view, and even China. I mean China is also in debt. In the public sector, debt is about 75 percent of GDP in China, and all the buyers are Chinese banks, so a downgrade in U.S. will have clearly have a negative effect and potentially a contagion effect to other economies. What will be important is to avoid the domino effect and clearly it has to remain under control." Data out today also shows inflation continues to be an issue for some economies like South Korea, where exports and consumer prices both went into overdrive. The Korean won jumped to a 3-year high, while a rebound in refiners like SK Innovation and S-oil led the Kospi to 1.7 percent gain. Arnold Gay, Reuters.