Asian Stocks Rally Amid Rate Cut Expectations and Policy Decisions

Asian stocks surged to their highest in over two months as expectations of more U.S. rate cuts kept risk sentiment high. Investors awaited the Reserve Bank of Australia's policy decision, while China's financial regulators announced measures to support the economy. The U.S. Federal Reserve's recent rate cut bolstered market sentiment.

Asian stocks reached their highest levels in over two months on Tuesday due to increasing expectations of additional U.S. rate cuts. Investors were also anticipating a policy decision from Australia's central bank.

In a closely watched press conference, China's top financial regulators, including the central bank, introduced a series of measures to aid the faltering economy, such as reducing mortgage rates for existing homes. The Reserve Bank of Australia is expected to maintain its current rates, but the U.S. Federal Reserve's recent 50 basis point cut has led some to believe Australia might follow suit.

"The RBA is likely to stick to its hawkish stance for now, aiming to keep inflation expectations anchored," stated Charu Chanana, head of currency strategy at Saxo. "A potential pivot may come only at the November 5 meeting, depending on additional labor market data and the Q3 CPI report."

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.04% at 586.31, levels last seen on July 15. Japan's Nikkei surged 1.69% to hit a near three-week high ahead of an eagerly awaited speech by Bank of Japan Governor Kazuo Ueda.

China's central bank lowered its 14-day repo rate by 10 basis points on Monday, days after disappointing markets by not cutting longer-term rates. Meanwhile, U.S. stocks closed slightly higher overnight as traders processed the Federal Reserve's recent rate cut decision.

"I am comfortable with a starting move like this - the 50 basis point cut in the federal funds rate announced last Wednesday - as a marker that we are considering both sides of the mandate," said Chicago Fed President Austan Goolsbee. Markets are split on whether the U.S. central bank will implement another rate cut in November, with current easing predictions for the year at 76 basis points.

Brown Brothers Harriman Senior Markets Strategist Elias Haddad noted that the market might be overestimating the Fed's capacity to ease further. He suggested that strong U.S. jobs data is needed to trigger a significant upward reassessment in Fed funds rate expectations. The next non-farm payrolls report is due on October 4, and until then, a dovish Fed and a resilient U.S. economy are expected to support financial market risk sentiment and impact the dollar's performance against growth-sensitive currencies.

The dollar index stood at 100.95, close to last week's one-year low of 100.21. The yen remained stable at 143.65 per dollar, while the euro was steady at $1.11055 after disappointing euro zone business activity reports. The Australian dollar was slightly lower, hovering near its recent nine-month high. In commodities, oil prices rose modestly in early trading.

(With inputs from agencies.)