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Stocks, Commodities, U.S. Futures Rally as China Lets Yuan Gain on Dollar

Asia shares rose the most in two weeks, U.S. stock index futures climbed and commodities advanced after China signaled it will relax the yuan’s fixed rate to the dollar. Treasuries fell.

The MSCI Asia Pacific Index rallied 2.6 percent to a six- week high of 119.23 at 2:30 p.m. in Tokyo. Oil increased 1.9 percent to $78.62 a barrel and copper climbed 3 percent. Yuan 12-month non-deliverable forwards strengthened 1.3 percent to 6.6235 per dollar, implying a 2.8 percent appreciation. U.S. Treasury 10-year notes fell for a second day.

The People’s Bank of China said it will end a two-year currency peg adopted during the global financial crisis to protect exporters, in a sign policy makers see the world economy strengthening. Commodity and industrial companies lead gains in Asian stocks on optimism for increased sales in the world’s third-largest economy.

“It’s a vote of confidence in Asia and in risk appetite and a reduction in the dangers of a trade war,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “The currencies of Asian nations, which are close competitors with China on the trade front, should do well.”

The MSCI Asia index climbed the most since June 3. The Nikkei 225 Stock Average jumped 2.5 percent, and the Hang Seng Index rallied 2.8 percent to lead all regional benchmarks. Australia’s S&P ASX/200 Index advanced 1.2 percent and South Korea’s Kospi Index gained 1.3 percent.

Equity Movers

Toyota Motor Co., the world’s biggest automaker rose 2.3 percent, BHP Billiton advanced 2.1 percent and Mitsubishi Corp. surged 6.4 percent. Posco, South Korea’s biggest steelmaker, jumped 5.2 percent and Komatsu Inc. increased 4.7 percent.

Futures for the Standard & Poor’s 500 Stock Index climbed 1.4 percent ahead of a report this week that is estimated to show a 6.5 percent increase in existing home sales in May to a six-month high, according to the median estimate of 57 economists surveyed by Bloomberg. The yield on 10-year notes rose six basis points to 3.28 percent in Tokyo, according to data compiled by Bloomberg.

Copper in London climbed to $6,629 a metric ton after falling to a more than one-week low yesterday. Zinc increased 4.5 percent to $1,807 and aluminum rose 2.6 percent to $1,993.75 a ton.

“The yuan policy shift is bullish for commodities that China needs to import and bearish for those it exports,” Li Qiang, managing director of Shanghai JC Intelligence Co., said in a phone interview. “But the process will be gradual and most of the impact will be on investor sentiment.”

Won, Aussie

China’s currency announcement triggered gains in higher- yielding currencies led by the South Korean won and the Australian dollar. The won strengthened 2.4 percent and the Aussie appreciated 1.2 percent to 88.20 U.S. cents, after touching 88.26 cents, the most since May 17.

China’s yuan climbed the most in 18 months against the dollar after the central bank signaled it would end a two-year peg. The currency advanced 0.21 percent to 6.8120 per dollar at 11:31 a.m., the biggest gain since Dec. 30, 2008, according to the China Foreign Exchange Trading System.

Bank of Korea Governor Kim Choong Soo said today a strengthening yuan may pose difficulties for South Korea by spurring gains in the won, which advanced the most in a week. Philippine central bank Governor Amando Tetangco said yesterday China’s decision to relax its peg “bodes well for intra-Asian trade” and may attract funds to regional assets.

G-20 Surprise

The Chinese central bank made its announcement at 7 p.m. Beijing time on June 19 in a posting on its website, a week before leaders from the Group of 20 nations meet in Toronto.

The PBOC said in a follow-up statement that a more flexible currency will “direct resources to domestic-demand driven sectors such as services” and help curb an excessive reliance on exports, signaling it anticipates the currency will rise.

Authorities will resume a managed float of the yuan against a basket of currencies, according to the June 19 statement. Before the exchange rate was frozen in July 2008, Premier Wen Jiabao’s government had allowed a 21 percent advance versus the dollar over three years.

China’s central bank yesterday reaffirmed it would maintain the yuan’s 0.5 percent daily trading band and said greater flexibility would help cut the trade surplus and reduce the reliance on exports as a driver of growth.

The yuan has been held at about 6.83 to the dollar since July 2008. Its peg to the dollar was scrapped in July 2005 and replaced by a managed float against a basket of currencies including the euro and the Japanese yen.