Asian stocks shot to a two-year high, boosted by interest in emerging markets, as the dollar remained close to an eight-month low against a basket of major currencies, with expectations increasing that the Federal Reserve will add to money supply before the year is over to support the US economy.
The MSCI index of Asian stocks outside Japan rose to the highest level since June 2008, as investor confidence in the region's prospects was boosted by signs Chinese manufacturing activity has held up well.
"Continued foreign buying, amid the US dollar's recent weakness and an increasing preference for emerging market stocks, has lifted the market to a new high," Lee Jin-woo, a market analyst at Mirae Asset Securities in Seoul, told Reuters.
Strong foreign portfolio flows into the region have lifted Asian currencies, putting pressure on regional central banks to step up intervention to limit the inflow of speculative "hot money" and to support their export-oriented economies.
In South Korea, foreign investors were buyers of a net 141 billion won ($124.8 million) worth of stocks, poised to pick up shares for a 14th straight session, the longest buying streak since April.
The MSCI index of Asia Pacific shares outside Japan, which has risen for six consecutive weeks, was up 1.1pc with a 2.3pc gain in the energy sector leading the pack on the back of firm crude prices.
Hong Kong's Hang Seng index led regional exchanges, rising 1.4pc to 22662.15 points.
However, the Nikkei closed 0.25pc down at 9381.06, as trading in Japan remained nervous ahead of a Bank of Japan policy decision on Tuesday.
Former BOJ Deputy Governor Toshiro Muto said on Friday the central bank may ease policy as inaction would run the risk of spurring further yen gains, given the prospects for easing by the Fed.
Traders are not expecting the BOJ to make a substantial change to policy but may hold off on big bets on the yen ahead of central bank meetings in Britain and the eurozone on Thursday, as well as the September US payrolls report on Friday.
"Nervous trade will likely continue this week, even after tomorrow's event, as US jobs data is also set to be released later in the week," Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities, told Reuters.
In Europe, the French CAC and Germany's DAX were each 0.5pc lower in early trading.
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