* MSCI Asia-Pacific index up 0.4 pct, Nikkei gains 2 pct
* Dollar extends rally as risk aversion continues to ease
* U.S. crude oil rebounds, gold extends losses
* China stocks still a wild card
TOKYO, Aug 27 (Reuters) – Asian stocks rose on Thursday as a sharp rebound on Wall Street helped soothe investors’ tattered nerves, while the dollar rallied as risk aversion eased.
Stock markets around the world had tumbled earlier in the week as a slump in Shanghai shares fueled worries over China’s economic health, but some calm returned after Beijing rolled out strong policy easing steps late on Tuesday.
Japanese and South Korean stocks gained strongly on Wednesday after U.S. stocks racked up their biggest one-day gain in four years.
Ironically, U.S. stocks rallied on Wednesday on expectations that the Federal Reserve will hold off from hiking interest rates next month due to mounting global uncertainties, including China – the very factors that prompted heavy selling in the previous sessions.
The Dow jumped 4 percent and the S&P 500 rose 3.9 percent.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4 percent early on Thursday, pulling away from a three-year low hit earlier in the week.
Tokyo’s Nikkei rose 2 percent and added to the previous day’s 3.2 percent gain, while South Korea’s Kospi climbed 0.7 percent. Australian shares advanced 0.7 percent.
Still, investors remained uneasy, with European shares remaining highly sensitive to angst over Chinese growth and sliding nearly 2 percent overnight.
Chinese shares, the epicentre of recent financial market tremors, failed to rally on Wednesday and ended lower in spite of the People’s Bank of China’s (PBOC) decision to cut the benchmark bank lending rate and relax reserve requirements for large banks.
A fresh slide in China’s equities and worries that China may allow a further depreciation of the yuan risked hampering a recovery in other riskier assets in Asia and beyond.
“Rather than getting ahead of the game with a well thought out plan for stabilising the economy, the PBOC appears to be reluctantly easing policy any time there’s a drop in share prices,” wrote Jasper, market analyst at CMC Markets.
“The net effect is that markets clamour for more stimulus while at the same time losing faith it will actually work.”
In currencies, the dollar dipped briefly overnight after New York Fed President William Dudley said the prospect of a September rate hike “seems less compelling” than it was only weeks ago given the threat posed to the U.S. economy by recent market turmoil.
However, he warned about overreacting to “short-term” market moves, and left the door ajar to raising rates when the U.S. central bank holds a policy meeting on Sept. 16-17.
But the greenback soon rallied as ebbing risk aversion reduced demand for the yen and euro, which had been sought as safe havens during the recent equity selling.
The greenback gained additional boost on upbeat U.S. durable orders data.
Against the Japanese currency, the greenback fetched 120.07 yen, recovering from a seven-month low of 116.15 plumbed on Monday
The euro was little changed at $1.1335 after losing 1.7 percent overnight, knocked further away from a seven-month peak of $1.1715 scaled on Monday.
The common currency was also hurt by comments from a senior European Central Bank official. Peter Praet said the risk of the ECB missing its inflation target has increased due to commodity price falls and weakness in some overseas economies.
Crude oil rebounded amid a general thaw in global risk aversion. U.S. crude futures bounced 1.8 percent to $39.28 a barrel. The contracts had slumped to a 6-1/2-year low on Monday, dogged by supply glut woes and worries of a hard landing by China’s economy.
Gold slid as the dollar rebounded and U.S. stocks rallied. Spot gold inched down to $1,124.86 an ounce. The precious metal has lost 3 percent so far this week.
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