Hong Kong's Hang Seng Index led gains across Asia
Hong Kong's Hang Seng Index led gains across Asia AFP

Equities extended a global rally Friday as investors were caught up in a wave of optimism that the Federal Reserve has finished its cycle of interest rate hikes, with eyes now on the release of US jobs data.

After a fallow past two months, markets have recovered some of their mojo after the US central bank left borrowing costs on hold for a second straight meeting and hinted that no more increases were likely.

While boss Jerome Powell left the door open for another lift as officials battle to bring inflation down, traders were sceptical of such a move, with elevated Treasury yields seen acting as a substitute for more tightening.

The news provided fresh hope that the Fed will be able to guide the world's number one economy to a so-called soft landing and avoid a recession.

It also lit a fuse under equities Wednesday and the rally continued in Asia going into the weekend.

"Asian stocks are coat-tailing the bullish momentum in US stocks and long-dated Treasuries as investors read in the tea leaves the strong possibility that the Federal Reserve has completed its cycle of rate hikes," said Stephen Innes, at SPI Asset Management.

He added that the payrolls report later Friday would be pivotal.

"Too hot or cold could swing the pendulum to more 'watchful waiting' to see how the Fed responds or, worse, more imminent recession fear if the print misses by a wide margin.

"But coming in near or on the breadth of economists' guesses would probably hit a high note for investors."

Hong Kong jumped more than two percent with Singapore, while Sydney, Seoul and Bangkok added more than one percent. There were also gains in Shanghai, Mumbai, Manila, Taipei, Wellington and Jakarta.

London, Paris and Frankfurt opened on the front foot.

Solita Marcelli, at UBS Global Wealth Management, saw Treasuries falling further in the new year, and added: "The improving outlook for a softish landing for the US economy should also provide a positive backdrop for equities."

And Capital Group's Andy Budden added that "the really big message for investors is that this moment of central banks peaking is likely to be the opening of a window where it's going to be a really good time to get invested".

However, others cautioned that Treasury yields could remain elevated -- keeping pressure on rates -- if the economy continued to perform strongly, exacerbated by Fed plans to sell more debt.

Barclays co-head of global markets Stephen Dainton warned that this being the end of Fed tightening was "very unlikely".

Still, traders are upbeat for now, with the dollar weakening as they get the confidence to find higher-risk currencies.

Oil was flat, having rallied more than two percent as traders bet on a pick-up in demand thanks to the more dovish rates outlook.

The gains -- helped by a weaker dollar -- came after a run of losses caused by hope that the Israel-Hamas war has been contained and will not spill into a wider conflict in the crude-rich region.

But analysts said traders remained wary that the crisis could turn at any moment, and prices could quickly spike past $100.

Hong Kong - Hang Seng Index: UP 2.5 percent at 17,664.12 (close)

Shanghai - Composite: UP 0.7 percent at 3,030.80 (close)

London - FTSE 100: UP 0.4 percent at 7,473.67

Tokyo - Nikkei 225: Closed for a holiday

Dollar/yen: DOWN at 150.32 yen from 150.48 yen on Thursday

Euro/dollar: UP at $1.0629 from $$1.0626

Pound/dollar: DOWN at $1.2201 from $1.2204

Euro/pound: UP at 87.13 pence from 87.04 pence

West Texas Intermediate: UP 0.6 percent at $82.91 per barrel

Brent North Sea crude: UP 0.5 percent at $87.25 per barrel

New York - Dow: UP 1.7 percent at 33,839.08 (close)