In This Article:
By Selena Li
HONG KONG, June 8 (Reuters) - Asia stocks rose on Wednesday, encouraged by a rally on Wall Street, but gains were kept in check by worries that aggressive central bank policy tightening will stifle global growth and raise the risks of stagflation.
The World Bank on Tuesday slashed its global growth forecast by nearly a third to 2.9% for 2022, warning that Russia's invasion of Ukraine has compounded the damage from the COVID-19 pandemic, and many countries now faced recession.
Nevertheless, U.S. stocks rallied to end higher for a second straight day, buoying the mood in Asia.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.9%, narrowing from morning gains but recouping most of its losses in the previous session, while Japan's Nikkei 225 index was up 0.8%.
Japan's economy shrank slightly less than initially reported in the first quarter, as private consumption remained resilient and companies rebuilt inventories. Gross domestic product in the world's third-biggest economy contracted by 0.1%, beating median market expectations for a 0.3% drop.
Australia's S&P/ASX 200 index rose 0.37%, recovering part of its slide on Tuesday after the central bank unexpectedly raised interest rates by the most in 22 years and flagged more tightening to come.
Elsewhere, the Reserve Bank of India's (RBI) key interest rate was raised by 50 basis points on Wednesday, as widely expected, in the second hike in as many months.
"Upside risks to inflation as highlighted in last policy meetings have materialised earlier than expected," RBI Governor Shaktikanta Das said after the policy decision.
On Thursday, the European Central Bank meets and markets are expecting it to at least lay the groundwork for rapid rate rises, if not begin them with a small hike.[ECBWATCH}
"I think the hikes coming from the central banks, or the front-loading is actually positive because it will allow us to kind of curb inflationary pressures," said Trinh Nguyen, senior economist at Natixis in Hong Kong, adding markets could be correcting from Tuesday's "over-reaction".
"But I wouldn't say that it's an reversal, unless a change of data will tell us otherwise," Nguyen said.
U.S. Treasury Secretary Janet Yellen told senators on Tuesday that she expected inflation to remain high and the Biden administration would likely increase the 4.7% inflation forecast for this year in its budget proposal.
Chinese stocks pared back earlier gains in morning trading and dipped 0.03%. Investors remain cautious about the outlook of the economy which is slowly getting back on track as strict COVID lockdowns are relaxed.