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Asian stock markets : https://tmsnrt.rs/2zpUAr4

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Nikkei, KOSPI hit fresh records, tracking Wall St

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Markets lean toward three Fed rate cuts by year end

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Bond yields down for the week, dollar flatlines

(Updates prices to Asian afternoon)

By Wayne Cole

SYDNEY, Sept 12 (Reuters) - Asian share markets followed

Wall Street higher on Friday as expectations for rapid-fire U.S.

rate cuts promised to lower borrowing costs globally, a relief

to stressed bond markets and a drag on the dollar.

The joy spread to European shares with the EUROSTOXX 50

futures, FTSE futures and DAX futures

all up 0.2%. S&P 500 futures and Nasdaq futures

were flat, having hit new peaks overnight.

Indexes in Japan, South Korea and Taiwan were all at or near

record peaks, while Chinese stocks hit a 3-1/2 year high,

spurred by extravagant expectations for AI-related earnings

growth.

The U.S. consumer price report had been the last major

hurdle to the Federal Reserve cutting interest rates next week,

and it proved unthreatening, if a little firm.

Indeed, costs in the CPI that feed into the Fed's preferred

measure of core personal consumption expenditures (PCE) were on

the soft side, leading analysts at Citi to predict a steady

reading of 2.9% for August.

"It's an encouraging reading for Fed officials preparing to

engage in a series of rate cuts," said Veronica Clark, an

economist at Citi.

"We continue to expect 125bp of rate cuts over the next five

FOMC meetings, with growing risk that the Fed will continue

cutting rates below 3%."

Markets continue to imply a 100% chance of a quarter-point

cut to 4.00%-4.25% next week, and ramped up the probability of

two further easings this year to around 90%.

The Treasury market has already eased in anticipation with

10-year yields down 20 basis points in the past

two weeks, effectively a rate cut given mortgage rates are tied

to yields in the United States.

That drop helped soothe concerns in some other major bond

markets, particularly in Europe, pressured by political

uncertainty and expanding fiscal burdens.

In Asia, Japan's Nikkei climbed 1.0% to another

all-time high, bringing gains this week to 4.1%. South Korea

added 1.3%, taking its weekly rise to almost 6%.

Chinese blue chips held steady, having hit the

highest since early 2022, while MSCI's broadest index of

Asia-Pacific shares outside Japan jumped 1.2%.

ECB IN A GOOD PLACE

In currency markets, the dollar was back at 147.40 yen

, having briefly been as high as 148.20 the previous

session. Japanese and U.S. finance ministers on Friday released

a statement reaffirming that neither country would target

currency levels in their policies.

The euro held at $1.1728, having got a modest

fillip on Thursday when the European Central Bank kept rates

unchanged and signalled it was in a "good place" on policy.

"This suggests the Governing Council is not inclined to ease

in the absence of a large growth shock," said Greg Fuzesi, an

economist at JPMorgan. "We have thus moved back our call for a

final rate cut from October to December."

"We recognise the ECB might be done with cuts, but still

think downside growth risks and the inflation outlook justify an

easing bias."

After the meeting, ECB sources told Reuters the December

meeting would be the most realistic time frame to debate whether

another cut was needed to buffer the economy.

Markets imply only a one-in-five chance of a December

easing, and around a 60% probability the ECB is done for this

cycle.

In commodity markets, gold firmed 0.5% to $3,654 an ounce

, just off the record top of 3,673.95 hit early in the

week.

Oil prices were under pressure after the International

Energy Agency predicted an even larger record oil surplus next

year as OPEC continues to pump more product.

Brent dropped 0.6% to $65.91 a barrel, while U.S.

crude eased 0.8% to $61.88 per barrel.