(Reuters) – Asian stocks headed for their best week in nearly three years after a long-awaited plan to resolve the European debt crisis sparked a huge relief rally in riskier assets, while the euro took a breather after jumping to a seven-week high.

European shares were set to extend the previous session’s sharp rally, with financial spreadbetters seeing gains of as much as 1 percent in Germany’s DAX .GDAXI, 0.7 percent in France’s CAC-40 .FCHI and 0.3 percent in Britain’s FTSE 100 .FTSE.

Analysts cautioned there was still a long way to go to find a lasting solution to Europe’s economic woes, but the initial measures reached by euro zone leaders reinforced growing confidence in recent days that they were prepared to tackle the issue seriously.

“The measures announced are partly political and some details about their implementation are still lacking,” said Cyril Beuzit, strategist at BNP Paribas.

“However, although these measures may not yet be seen as the final solution … they are clearly a step in the right direction, which should help restore some confidence in the market.”

Euro zone leaders are now under pressure to finalize details of their plan to slash Greece’s debt and strengthen the European Financial Stability Fund (EFSF), possibly through investment by emerging economies.

The head of Europe’s bailout program said on Friday he does not expect to reach a conclusive deal with Chinese leaders during a visit to Beijing.

While the EU agreement has received a big tick of approval from markets, investors will be able to gauge the extent to which it has improved sentiment on debt of highly-indebted countries at an Italian auction later on Friday.

“We’ve been here before, the market reacts very positively and then over time realizes it hasn’t solved the problem,” cautioned Joseph Capurso, forex strategist at Commonwealth Bank.

The focus also shifts to a Group of 20 meeting next week in Cannes, southern France.

RISK RALLY

For the moment, investors cheered progress, and shrugged off the lack of details on Greek debt relief.

European shares climbed to a 12-week high and Wall Street jumped 3 percent, pushing the S&P 500 .SPX benchmark over its 200-day moving average for the first time since early-August.

Risk appetite was further supported by data showing the U.S. economy grew at its fastest pace in a year in the third quarter, a welcome respite for a financial system that seemed on the brink of a recession some weeks ago.

Corporate earnings in the United States have also bolstered hopes of a fourth-quarter rally.

According to Thomson Reuters Starmine, about half of the S&P 500 constituents have reported quarterly results with 79 percent beating or meeting analyst expectations.

The MSCI Asia Pacific ex-Japan index rose 1.3 percent and is up nearly 10 percent so far this week.

In Asia company news, Samsung Electronics (005930.KS: Quote, Profile, Research, Stock Buzz) surpassed Apple Inc (AAPL.O: Quote, Profile, Research, Stock Buzz) as the world’s top smartphone maker with than 40 percent shipment growth and forecast strong fourth-quarter sales, sending its shares up 1.8 percent.

Japan’s Nikkei .N225 closed up 1.4 percent despite the yen hitting record highs against the dollar for three days in a row.

The dollar index .DXY was up 0.2 percent after falling some 1.6 percent, its biggest one-day fall since May 2009, while the euro edged off its peak.

Traders said funds that had been underweight risk in the past few months piled back into markets for fear of missing out on a more sustainable rally into the year-end, but cautioned that the euro remains vulnerable in the longer term as the EU still needs to finalize its latest plans.

The euro, which hit a seven-week high of $1.4248, slipped 0.1 percent to $1.4171. Traders pointed to small offers starting to build up above $1.4200 and stops at $1.4260.

The weaker U.S. dollar prompted the People’s Bank of China to set the yuan’s central parity rate at a record high of 6.3290 on Friday, the highest level since the revaluation in 2005.

The Australian dollar was on course for its biggest monthly jump since May 2009, up 10.4 percent for the month to date.

Brent crude slipped 0.4 percent to around $111.62, but prices have posted a weekly gain of almost 2 percent. Prices have also pushed the front-month Brent 200-day moving average above $112.25 a barrel.

Shanghai copper futures opened up 6 percent to its daily limit but pared about half its gains by early afternoon.

Spot gold was little changed at $1,742.60 an ounce by 0440 GMT (12:40 a.m. EDT) and was poised for its biggest weekly gain since January 2009.

U.S. stocks futures SPc1 were up just 0.15 percent in late
Asian trade, suggesting market caution ahead of the
manufacturing and jobs data which may give clues as to whether
the U.S. Federal Reserve will step in to support the economy.

Global shares have risen sharply in recent days, rebounding
from heavy losses in August as signs of a weakening economy have
led to speculation the Fed will introduce a new round of
monetary expansion.

Asian stocks were buoyed by a series of surveys showing that
China managed modest improvement in factory activity in August
thanks to solid domestic demand, despite a slump in export
activity that has hit many major Asian markets.

“The China PMI data gave some immediate relief to the
market, but the U.S. data, particularly the employment numbers,
are still to come,” said Yutaka Shiraki, senior equity
strategist at Mitsubishi UFJ Morgan Stanley Securities.

Brazil shocked investors by cutting its key interest rate to
12 percent from 12.5 percent on Wednesday, citing concern over
the global slowdown as well as weaker growth in Latin America’s
largest economy.

EUROPE SEEN MIXED

European shares rose on Wednesday as the pan-European
FTSEurofirst 300 index of top shares closed up 2.9
percent, but still fell 10.6 percent during August — its worst
monthly performance since October 2008, just after the Lehman
Brothers collapse.

However, major European markets were seen opening mixed,
according to financial spreadbetters, with Britain’s FTSE 100
set to open between 8 points down and 2 points up.

The MSCI Asia Pacific ex-Japan index was up
0.7 percent in late trade, having been up 1.4 percent early in
the day.

In Japan, the Nikkei gained closed up 1.2 percent,
clearing the key 9,000 level for the first time in two weeks,
while South Korea’s KOSPI also shed gains late in the
day to be up only 0.1 percent as economic data showing the
country’s manufacturing sector shrank in August for the first
time in 10 months.

CHINA DATA

China’s official PMI offered some reassurance about the pace
of growth, rising on Thursday to 50.9 in August from a 28-month
low of 50.7 in July and signalling some stabilisation in the
manufacturing sector on solid domestic demand.

However, the result was just below expectations and the
sub-index for new export orders dipped to 48.3 from 50.4,
curbing gains in mining stocks.

U.S. economic data on Wednesday showed the economy continues
to struggle, and the U.S. Institute for Supply Management’s
national manufacturing index was due later on Thursday, followed
by the U.S. Labour Department’s employment report on Friday.

Fears that the ISM index may fall below 50 have been eased
by a brighter than expected reading of manufacturing activity in
the Chicago area released on Wednesday.

Also on Thursday, the White House will release its delayed
midsession budget review, updating projections for the U.S.
economy ahead of a congressional review to lower the deficit by
$1.5 trillion over 10 years.

Among currencies, the yen fell across the board after dollar
buying by Japanese accounts lifted it above 77 yen , while
the Australian dollar gained broadly as retail sales and capital
spending data beat expectations,

The Swiss franc held on to gains scored the previous day
after a top government official said Switzerland would have to
live with a strong currency, to stand at 0.8065 francs per
dollar .

The euro last traded at $1.4373 , off a two-month high
at $1.4550 hit at the start of the week on worries over how the
fragmented currency bloc will deal with its debt crisis.

Brent crude rose to a one-month high above $115 after
China’s manufacturing rebounded, stoking expectations for growth
in the world’s largest energy consumer.

But the fall in China’s export orders helped push LME copper
down 0.7 percent. Spot gold was little changed at
1,8224.00 an ounce.

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Global markets have gained strength in recent days, rebounding from several weeks of losses that saw Asian stocks post their worst month in August since May last year, despite concerns about a slowdown in the pace of global growth.

The pick-up has been bolstered by speculation the Fed is preparing a new round of monetary expansion, and may hint at new stimulus after its $600 billion bond-buying program expires in June.

U.S. economic data show the economy continues to struggle, with the pace of private sector job growth slowing in August for a second month. Factory activity in the Chicago region expanded at its slowest pace since November 2009.

China’s official PMI offered some reassurance about the pace of growth, rising on Thursday to 50.9 in August from a 28-month low of 50.7 in July and signaling some stabilization in the manufacturing sector on solid domestic demand.

The MSCI Asia Pacific ex-Japan index .MIAPJ0000PUS rose 1 percent in early trade, having fallen 9 percent in August when global markets were roiled by a sovereign downgrade in the United States, persistent debt problems in the euro zone and downward revisions in growth expectations.

In Japan, the Nikkei .N225 gained 1 percent to clear the key 9,000 level for the first time in two weeks, while South Korea’s KOSPI .KS11 added 1.43 percent despite economic data showing the country’s manufacturing sector shrank in August for the first time in 10 months.

Underscoring fears about a global slowdown, Brazil surprised markets by cuttings its benchmark rate to 12.0 percent from 12.5 percent, and expressed particular concern about the pace of growth in mature economies.

In commodity markets, Brent crude was little changed at $114.95 after rising overnight, lifted by a sharp drawdown in U.S. gasoline supplies.

Spot gold edged higher in early Asian trade to 1,826.35 an ounce, after falling about 0.7 percent in U.S. trade following recent strong gains.

Among currencies, the Swiss franc held on to gains made the previous day after a top government official said Switzerland would have to live with a strong currency, while commodity currencies dipped after Brazil’s rate cut.

The Australian dollar fell 0.2 percent to $1.0675, slipping from a one-month high of $1.0722 hit on Wednesday.

The euro eased slightly to $1.4360, slipping further from a two-month high at $1.4550 hit at the start of the week, though traders say the currency is essentially playing in a range.

(Reporting by Richard Pullin; Editing by Ramya Venugopal)

Oil prices and the euro dipped briefly after China’s April inflation came in slightly above expectations, but other data, including industrial output, suggested slower activity and less room for aggressive tightening to curb growth.

“Price pressures are still uncomfortably strong, but there are some signs in today’s data that policy measures put in place over the last six months or so are having an impact,” said Brian Jackson, an economist with Royal Bank of Canada in Hong Kong.

Stocks remained supported by a recovery in commodities after last week’s near-record sell-off and an easing of concerns about any Greek debt restructure following a debt downgrade.

“The dominant theme this week is whether last week’s fall in commodities was just a speculative reversal rather than a brutal reassessment and it appears that, yes, it was. The market was running ahead of itself,” said Adrian Foster, head of financial markets research, Asia-Pacific at Rabobank International in Hong Kong.

Japan’s benchmark Nikkei 225 index .N225 closed up 0.5 percent, while Hong Kong’s Hang Seng .HSI was flat and South Korea’s Kospi .KS11 was up 1.3 percent after a holiday on Tuesday.

Asian shares outside Japan .MIAPJ0000PUS rose 1.1 percent on Wednesday, while Australia’s S&P/ASX 200 up 1.2 percent, with global miner Rio Tinto (RIO.AX: Quote, Profile, Research) moving up 1.8 percent.

The euro held on to gains in Asia, trading at $1.4392. The currency has been moving away from a three-week low, helped by stabilising commodity prices and chances of another aid package for Greece.

However, a further move to the upside could be constrained by the chance of more negative news about the prospects of the euro zone’s efforts to help Greece and other financially strained countries.

CHINA DATA

China’s headline consumer price inflation slowed to 5.3 percent in April from a 32-month high of 5.4 percent in March, but missed market forecasts for a decline to 5.2 percent.

The overall data was mixed with industrial output considerably weaker than expected, climbing 13.4 percent in April and retail sales also coming in below forecasts.

“The economy is slowing, but not very seriously,” said Chen Gang, an economist with CEBM in Shanghai. “It is still far from the warning line for the Chinese leadership. There is no room for the central bank to relax its monetary tightening.”

The inflation data followed Chinese trade figures on Tuesday that suggested still-strong global demand, although a slowdown in imports raised concerns for some analysts about slower growth.

Analysts said it was clear the economy was slowing but were divided on the likely policy response to curb inflation.

China’s central bank has raised interest rates four times since October and Premier Wen Jiabao has signalled a hawkish stance for the coming months to bring inflation under control. The government has a 4 percent ceiling on annual inflation.

Spot gold edged up 0.4 percent to 1522.74, heading for a fourth day in a row of gains, while silver rose 1 percent.

“Gold is generally benefiting from the return of confidence from investors,” said Darren Heathcote, head of trading at Ivestec Australia. “They are very happy buying on the dip, as we see the same old problems hanging around.”

Oil prices recovered from an initial dip on the China data to be slightly higher. Brent cruded was trading at $117.86, continuing the march back from last week’s steep fall as rising waters along the Mississippi River threatened to disrupt petroleum plants in Louisiana in the next two weeks.

The Australian dollar, which is sensitive to Chinese demand for the country’s coal and iron ore, was little changed at $1.0857.

Oil prices dipped briefly on concerns about weaker Chinese demand, but the broader commodity price recovery after steep falls last week and easing concerns about a possible restructure of Greek debt kept markets in positive territory in line with gains in the U.S. and Europe.

Japan’s benchmark Nikkei 225 index .N225 was trading up 0.45 percent at 0425 GMT, while Australia’s S&P/ASX 200 was up 0.9 percent and South Korea’s Kospi .KS11 was 0.8 percent higher after a holiday on Tuesday.

Asian shares outside Japan .MIAPJ0000PUS rose 0.9 percent on Wednesday.

The euro held on to gains in Asia, trading at $1.4402. The currency has been moving away from a three-week low, helped by stabilizing commodity prices and chances of another aid package for Greece. Some traders said selling based on Greece worries could subside though the currency may remain vulnerable.

CHINA DATA

China’s headline consumer price inflation slowed to 5.3 percent in April from a 32-month high of 5.4 percent a month earlier, but missed market forecasts for a decline to 5.2 percent.

The overall data was mixed with industrial output considerably weaker than expected, climbing 13.4 percent in April and retail sales also falling below forecasts.

“The economy is slowing, but not very seriously,” said Chen Gang, an economist with CEBM in Shanghai. “It is still far from the warning line for the Chinese leadership. There is no room for the central bank to relax its monetary tightening.”

The inflation data followed trade figures on Tuesday that suggested still-strong global demand, although a slowdown in imports raised concerns for some analysts about slower growth.

Analysts said it was clear the economy was slowing but were divided on the likely policy response to curb inflation.

China’s central bank has raised interest rates four times and since October, and Premier Wen Jiabao has signaled a hawkish stance for the coming months, to bring inflation under control. The government has a 4 percent ceiling on annual inflation.

Commodity prices, which have been recovering from last week’s near-record sell-off, eased slightly, although spot gold edged up 0.4 percent to 1520.74, heading for a fourth day in a row of gains.

Brent crude initially fell toward $117 as the inflation data rekindled concern that Beijing’s efforts to cool the economy of the world’s second-largest oil user would erode energy demand.

Brent was trading at $117.45 at 0425 GMT, continuing the march back from last week’s steep fall as rising waters along the Mississippi River threatened to disrupt petroleum plants in Louisiana in the next two weeks.

The Australian dollar, which is sensitive to Chinese demand for the country’s coal and iron ore, was unchanged at $1.0855.

U.S. stocks rose for a third day in a row, led by utilities
and other defensive sectors, while European shares climbed to a
one-week closing high as investor concerns over a possible Greek
debt restructuring receded.

The euro maintained overnight gains on Wednesday, helped by
stabilising commodity prices and chances of another aid package
for Greece, but some traders said selling based on Greece
worries could subside though the currency may remain vulnerable.

Markets will be on the look-out for any surprises from
China’s inflation data, due out at 0200 GMT, which could prompt
a further round of tightening. A downside surprise will ease
those concerns. April consumer price data is expected to come in
around 5.2 percent.

Japan’s benchmark Nikkei 225 index added 0.9
percent, while Australia’s S&P/ASX 200 gained 1.0
percent and South Korea’s Kospi rose 1.0 percent after a
holiday on Tuesday.

Asian shares outside Japan rose 0.8 percent
in early trade on Wednesday.

Australia’s top home lender, Commonwealth Bank of Australia
posted a 13 percent rise in Q3 profits, as expected,
and said it saw a gradual improvement in operating conditions.

Commodity prices firmed on Tuesday, recovering from last
week’s near-record sell-off, as China’s stronger-than-expected
trade data illustrated the strength of global demand.

Gold and silver rose, while copper held firm. Spot gold
edged up 0.2 percent in early Asia trade at 1517.95,
heading for a fourth day in a row of gains.

Crude oil prices also edged up in Asia after resuming their
march back from last week’s steep fall as rising waters along
the Mississippi River threatened to disrupt petroleum plants in
Louisiana in the next two weeks. U.S. crude CLc1 was trading
up 0.25 percent at $104.14 a barrel.

Stronger commodity prices boosted the Australian dollar
, which rose back above $1.08 to $1.0859. The euro
held overnight gains to be at $1.4410.

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A sharp drop in silver prices last week triggered a broader
pullback in raw materials that had a domino effect on other
risky assets such as emerging market equities, as some investors
slashed big positions and went to the sideline.

The move by the CME Group to make it more expensive for
speculators to trade oil futures on margin, while not completely
unexpected, added to a sense that a year-long steep climb in
commodity prices is on hold for now.

“Having high margin requirements makes it more difficult for
speculative traders to enter the market, so naturally that will
cause less speculative activity in oil markets,” said Ben
Westmore, commodity economist at National Australia Bank.

Equities were mixed in quiet trading with Japanese
and Australian benchmarks in negative territory as
worries about corporate earnings offset a rebound in metals and
oil prices, while stocks ex-Japan nudged up 0.14
percent.

Markets in Hong Kong and South Korea were shut for a
holiday.

The euro fell to a six-week low against the yen on
concerns an international bailout package for Greece may not be
sustainable and that the country may need a more lenient plan.

“In the short-term, there could be more unwinding of
euro/dollar long positions due to negative news on fringe euro
zone countries’ debt problems,” said Junya Tanase, currency
strategist at JPMorgan in Tokyo.

Oil prices fell as much as 2 percent in Asia after the CME
Group hiked trading margins for U.S. crude futures
following a volatile week of trading that saw U.S. crude prices
fall from over $114 a barrel — the highest level since 2008 –
to $94 a barrel.

NYMEX crude for June CLc1 tumbled $1.48 to $101.07 a
barrel by 0300 GMT, erasing nearly a third of a 5 percent
rebound on Monday, while Brent crude LCOc1 fell $1.35 to
$114.55 a barrel.

The impact of the margin hike on oil prices may be less
severe than on silver, which fell more than 30 percent in late
April due to a succession of margin hikes, forerunning a
sell-off in other commodities.

Silver on Tuesday extended its recovery into a third day.
COMEX silver SIcv1 climbed as high as $37.90, easing to $37.69
by 0305 GMT, up nearly 7 percent from last week’s close, but
still well off its recent closing high above $48 an ounce. Spot
gold edged down 0.2 percent to $1,509.65 an ounce.

GREEK DOWNGRADE

Jitters over a possible second bail-out package for Greece
kept the euro pinned around $1.436, although just off a
seven-week low of $1.4354 hit the previous day. Against the yen,
the euro was at 115.07, its lowest since late March.

The euro’s recent fall was accelerated by last week’s
commodity sell-off and Monday’s move by ratings agency Standard
& Poor’s to cut Greece’s rating to B from BB-, dragging it
further into junk territory.

But some analysts said the euro was unlikely to fall as
sharply as it did a year ago when the Greek debt crisis hit
financial markets, because there was now a safety net for
indebted countries.

“Last year there was an imminent threat that Greece could
default. But now, even though people are talking about the
possibility that some countries could default in the future,
there are no worries about immediate defaults,” said J.P.
Morgan’s Tanase.

Japan’s Nikkei stock index edged lower as investors waited on
corporate earnings from major companies, including bellwether
Toyota Motor , which reports on Wednesday.

“The impact from Greece’s downgrade is not that big, but it
is not helping investor appetite,” said Fujio Ando, senior
managing director at Chibagin Asset Management.

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In Australia, Reuters surveys 15-25 economists ahead of each quarterly CPI figure. A check back over analyst forecasts for the past 17 years shows:

• the median forecast mostly gets the direction right, but tends to miss the highs and lows of the cycle
• the median forecast is pretty close about half the time
• but about a quarter of the time it’s well off the mark
• and of those — about 10 percent of the time — it’s not even close 

Forecasts matter because financial markets closely watch surveys of analyst expectations for major data, and the consensus forecast is priced into the market well before official figures are released. So any big swings in the exchange rate or bill prices on the day are usually due to whether the result matches expectations, rather than the figure itself.

Comparing the median forecast with the actual outcome produces a table that looks like this.

 * The spike in Q3 2000 reflects the introduction of a Goods and Services Tax. The quarterly CPI rose 3.7 percent, compared with a forecast 4.2 percent increase.

Excluding Q3, 2000, the quarterly CPI outcome over the 17 years from Q1 1992 has ranged from -0.4 to 1.7, while the median forecast has ranged from -0.4 to 1.6. The quarterly CPI outcome averaged 0.6, excluding the 2000 tax-affected quarter.

Running an eye over the table shows a few things:

* The market is more conservative than the data – it tends to underestimate the highs and misses the lows as well.

 * The market mostly gets the direction right – but not always. Of the 69 observations the market clearly missed the direction four times. It called the direction flat, when it wasn’t, another six times.

The figures show the market got it exactly right just 11 times, and hasn’t got it right since Q4 2003. Being a little more generous and accepting a 0.1 percentage point variation around the actual outcome, the market has been in the ballpark 36 times, or some 52 percent.  And clearly wrong, say 0.3 percentage points out or more, that’s 18 times or about 26 percent.

For the statistically minded, there are quite a few academic papers on forecasting accuracy. The most popular statistics seem to be the mean absolute error (the average of the forecasters’ errors without regard to arithmetic sign) and the root mean square (calculated by first squaring the errors, then taking the square root of the arithmetic average of the squared errors), which gives greater weight to larger errors.

The mean absolute error is 0.18. The root mean square error is 0.24.

One other graph, this one showing how the outcome compared with high and low forecasts from the economists surveyed going back to Q2 2003 – some 23 observations. A look at the graph shows the field got it right 20 times. But on 3 occasions the result was outside the field, about 13 percent. Given these forecasts are made the week before the data, it shows just how difficult it is to make long-term forecasts!