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

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Asian shares trade at 2-1/2 year highs

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PBOC cuts banks' RRRs, 7-day, 14-day reverse repo rates

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Japan's leadership contest heads to runoff; US PCE data

due

(Updates prices as of 0530 GMT)

By Stella Qiu

SYDNEY, Sept 27 (Reuters) - Chinese stocks raced toward

their best week since 2008 and helped lift Asian shares to

2-1/2-year highs after Beijing rolled out a huge stimulus

package to revive the economy, while a sharp fall in oil prices

bodes well for disinflation globally.

The Japanese yen fell 1% to three-week lows as markets bet

Sanae Takaichi, the economic security minister who opposed

interest rate hikes, could win the leadership contest of Japan's

ruling Liberal Democratic Party on Friday.

European sharemarkets are set to open slightly higher, with

EUROSTOXX 50 futures adding 0.2% and FTSE futures

up 0.1%. Wall Street futures were largely flat.

MSCI's broadest index of Asia-Pacific shares outside Japan

gained 0.5%, having hit its highest level since

February 2022 earlier in the day. It was headed for a weekly

gain of 5.3%, thanks to a huge turnaround in Chinese shares.

China's blue chips jumped 3.5%, bringing the

weekly rise to 14.6%, the most since November 2008.

Hong Kong's Hang Seng index also gained 1.9% and was

up 11.2% for the week, its best performance since 2009.

"Beijing seems finally determined to roll out its bazooka

stimulus in rapid succession... Beijing's recognition of the

severe situation of the economy and lack of success in a

piecemeal approach should be valued by markets," said Ting Lu,

chief China economist at Nomura.

"But eventually it is still necessary for Beijing to

introduce well thought policies to address many of the

deep-rooted problems, particularly regarding how to stabilize

the property sector, which is now in its fourth year of

contraction."

As flagged, the People's Bank of China on Friday lowered

banks' reserve requirement ratio by 50 basis points and cut the

7-day reverse repo rate by 20 bps. It also cut the 14-day

reverse repo rate by 20 bps, the second reduction this week.

Reuters reported on Thursday that China planned to issue

special sovereign bonds worth about 2 trillion yuan ($284.43

billion) this year as part of a fresh fiscal stimulus.

Commodities have had a good week on Chinese stimulus. Iron

ore prices clambered back above $100 a metric ton,

copper broke above the key $10,000 a ton mark, gold hit

another record and silver scaled a 12-year top.

Oil was a loser and set for heavy weekly losses on a report

that Saudi Arabia was preparing to abandon its unofficial price

target of $100 a barrel for crude as it gets ready to increase

output.

Brent futures fell 0.4% to $71.31 a barrel and are

down 4.2% for the week. That should be good for global

disinflation as central banks ramp up rate cuts, and bullish for

consumer spending.

YEN SKIDS

Results from Japan's Liberal Democratic Party's first-round

balloting showed economic security minister Sanae Takaichi, 63,

and former defence minister Shigeru Ishiba, amassed the most

votes and qualified for the second round expected to conclude at

0630 GMT.

Markets are already betting Takaichi - a vocal critic of the

Bank of Japan's efforts to raise interest rates - could win as

swaps imply there is just a 30% chance that the central bank

could lift rates again by the year end.

The dollar rose 1% to 146.23 yen after the first

round of balloting. The Nikkei rallied 1.8% and was up

5% for the week on the back of a weak yen.

"Risks of the BOJ being pushed to the dovish side are

weighing on the yen now, but we have to remember that narrowing

of the yield differentials, which is a key driver for yen, will

likely remain Fed-driven and in favour of the yen," said Charu

Chanana, head of currency strategy at Saxo.

Treasury yields were steady in Asia, having risen overnight

on low U.S. weekly jobless claims that led markets to lower the

odds of another outsized half point rate cut from the Fed in

November to 51%, from 57% a day earlier.

Investors are waiting for the core personal consumption

expenditures (PCE) price index - the Fed's preferred measure of

inflation - later in the day. Forecasts are centred around a

small monthly rise of 0.2%, as markets are split on the size of

an expected Federal Reserve rate cut in November.

Two-year Treasury yields were up 6 bps this week

to 3.6348%, while 10-year yields rose 7 bps in the

week to 3.789%.