Markets rally before Fed, China zero-Covid hopes boost…

Markets rally before Fed, China zero-Covid hopes boost Hong Kong

Hong Kong stocks rallied on hopes that China is to discuss moving away from its zero-Covid strategy. ©AFP

London (AFP) - Asian and European stock markets rose further Tuesday, as traders looked ahead to the Federal Reserve's policy decision, hoping it will signal a more dovish approach to fighting inflation.

The Fed is widely expected Wednesday to announce a fourth straight 75-basis-point rate hike as it tries to rein in runaway prices, which has led to worries it will tip the world's top economy into recession, sending stocks tumbling.

But a recent report suggesting officials are looking to dial down the pace of increases has sparked a rally in risk assets over the past week -- helped by signs other central banks are also trying to take a step back.

Waiting game

"The waiting game for the Fed is still on, with investors largely in the dark until the US central bank illuminates the path ahead for interest rate rises tomorrow," said Hargreaves Lansdown analyst Susannah Streeter.

"In the interim they have been feeling their way to a more optimistic attitude, hopeful that economic indicators hinting that inflationary pressures are beginning to subside could lead to a softening in monetary policy."

In Asia, Hong Kong led the rally following unconfirmed posts on Chinese social media saying officials were putting together a committee to discuss how to move the country away from its economically damaging zero-Covid policy.

Shares jumped more than five percent after the appearance of the unverified document, which ramped up hopes that the world's number two economy could begin opening up again in the new year and ease the strict containment measures that have hammered productivity and markets.

However, neither Chinese state media nor government officials have suggested that the meeting actually took place, or that such a committee was established, raising questions about the veracity of the statement.

Nonetheless, Shanghai climbed more than two percent, while the yuan also rallied after recently falling to record lows against the dollar.

Sydney was also well up after the Australian central bank lifted rates by 0.25 percentage points to a near-decade high but brushed off calls for a bigger raise, surging despite inflation.