Australia Markets closed

Asian shares rebound as US, Iran back off

By Tom Westbrook
Asian share markets are higher, after Wednesday's flee to safe havens, turned into a relief rally

Asian stocks have had their best session in weeks, as the United States and Iran backed away from the brink of conflict in the Middle East and investors reversed their flight to safety.

US President Donald Trump responded to an Iranian attack on US forces with sanctions, not violence. Iran offered no immediate signal it would retaliate further over a January 3 US strike that killed a senior military commander.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.3 per cent, its sharpest gain in almost a month.

Hong Kong's Hang Seng and Shanghai blue chips each added more than one per cent, while Japanese stocks rose further, gaining two per cent to their highest for the year so far.

Australian stocks rose 0.8 per cent to a record closing high. Futures markets pointed to extended gains in Europe and the United States, with S&P 500 futures up 0.2 per cent and German DAX futures 0.9 per cent higher.

"I think today is a bit of a relief rally," said Shane Oliver, Chief Economist at AMP Capital in Sydney.

"Yesterday, investors were fearing the worst, that this was the escalation now underway. The news overnight has been more along the lines that Iran pulled its punches and Trump is toning things down," he said, "which is seen by investors as substantially reducing the risk of a war."

Investors quit the safe-haven Japanese yen, sending it sliding from a three-month high to a two-week low of 109.32 yen per dollar.

Oil is cheaper than it was before the killing of the Iranian commander, Qassem Soleimani, in Baghdad, a strike that raised fears of an escalating regional conflict.

Brent futures prices steadied at $US65.41 per barrel, about where they began the year.

Gold gave back sharp gains made on Wednesday but remains dearer than before Soleimani's death, in an indication that investors' fears have not completely evaporated.

It drifted lower to $US1,544.80 per ounce.

Iran fired missiles at military bases housing US troops in Iraq on Wednesday in response to Soleimani's killing. But Trump said no Americans were hurt and made no direct threats of a military response in an address to the nation on Wednesday.

"Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world," he said. He announced economic sanctions on Iran without giving details.

Iranian Foreign Minister Mohammad Javad Zarif had earlier said the strikes "concluded" Tehran's response to the killing of Soleimani.