KUALA LUMPUR, May 25 — Asian stocks rebounded from a seven-week low, joining a rally in US and European shares as evidence of strength in the world’s largest economy stoked speculation America will be able to withstand higher interest rates. Crude oil rose with industrial metals.

Mounting conviction that the Federal Reserve will boost borrowing costs some time in the next two months preserved the greenback’s gains against the euro and the yen, while the equity rally and  crude rising for a second day supported emerging-market currencies in South Korea and Malaysia. Shares in Japan and Australia led the Asian advance, with mining stocks driving gains as copper, nickel and aluminum climbed at least 0.2 per cent. Government debt fell, while gold held losses following its longest selloff since November.

After swinging around since the release of the Fed’s April meeting minutes last week, markets seem to have grown comfortable with the elevated odds of an imminent increase in US rates. Traders are now pricing in a better-than-even  chance of a boost to borrowing costs at the central bank’s July meeting, with Fed officials lining up to indicate their willingness to support such a move, should recent strength in the economy be sustained. Data yesterday showed purchases of new homes surged in April to the highest level since the start of 2008, and investors will scrutinize comments from Fed Chair Janet Yellen later this week, as well as a key government payrolls report due on June 3.

“Strong US home sales have added credence to the Fed’s claims that the US economy may be strong enough for another rate hike in June or July,” Angus Nicholson, a market analyst in Melbourne at IG Ltd., said in an e-mail to clients. “Commodities have been remarkably buoyant overnight given the strong performance in the dollar.”

Stocks

The MSCI Asia Pacific Index added 1 per cent as of 10.01am Tokyo time, rising for the third time in four days after sliding to its lowest level since April 6 yesterday. Japan’s Topix index jumped 1.4 per cent, the most in two weeks, while gains in energy producers, banks and raw materials shares boosted Australia’s S&P/ASX 200 Index by 1.6 per cent.

The Kospi index in Seoul advanced 1.1 per cent, and New Zealand’s S&P/NZX 50 Index added 0.6 per cent as air travel-related stocks and utilities led gains. Singapore’s Straits Times Index rose 1.3 per cent.

Futures on the S&P 500 climbed 0.1 per cent following the US benchmark’s 1.4 per cent surge last session, which was driven by gains of more than 1.5 per cent in financial stocks and technology shares.

For a rundown on US equity-market action, click here

The probability of a Fed rate hike in June has ticked up to 34 per cent, from 12 per cent a week ago, while odds of an increase in July are now at 54 per cent, according to Fed funds futures tracked by Bloomberg. Data on the US services industry and house prices is due Today.

“Before, there was a sense that higher rates would spell trouble, but the market has had time to digest that,” said Bill Schultz, who oversees US$1.2 billion (RM4.94 billion) as chief investment officer at McQueen, Ball & Associates Inc. in Bethlehem, Pennsylvania. “People may be coming around on the idea of a rate hike as an indication of economic strength. Maybe there’s a bit more of an optimistic view, and today we’re rallying through the close.”

In Hong Kong, futures on the Hang Seng and Hang Seng China Enterprises indexes climbed at least 1 per cent in most recent trading, as those on the FTSE China A50 Index were bid up 0.4 per cent.

Currencies

The yen shed another 0.1 per cent to 110.11 per dollar, after sinking 0.7 per cent last session. The euro traded at US$1.1138, maintaining yesterday’s 0.7 per cent drop as the Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, held on to last session’s 0.3 per cent advance.

The Korean won added 0.4 per cent, strengthening for the third time in four days, while the Malaysian ringgit gained 0.2 per cent amid crude’s rally. Malaysia is Asia’s only major net exporter of oil.

The New Zealand dollar strengthened 0.2 per cent to 67.51 US cents after data showed exports from New Zealand grew more than economists expected last month. — Bloomberg