UPDATE:Asian Shares Sharply Higher; Mining Shares Outperform

SINGAPORE -- Asian stock markets were sharply higher Monday after a strong showing on Wall Street Friday, with Japanese automakers getting a boost from a weakening yen and mining shares pushing up across the region.

However, China shares, which have been a major cue for Asian markets recently, were only modestly higher. Shanghai's Composite index was up 0.7% at 2,980.78 after briefly dipping into the red in the morning session.

"This is a new wave of optimism," said IG Markets institutional dealer Chris Weston. "There's no way this momentum on Wall Street will just turn around."

Japan's Nikkei 225 rose 3.1% while Australia's S&P/ASX 200 was up 2.7% and South Korea's Kospi Composite gained 1.6%. Taiwan shares were up 2.7%, Hong Kong's Hang Seng index was 1.9% higher and New Zealand's NZX-50 was up 1.0%.

Singapore's STI had gained 2.0%, Malaysia's benchmark was up 0.6%, Thai shares were up 1.7%. Manila's benchmark stock index was 4.5% higher. Dow Jones Industrial Average futures had risen 48 points in screen trade.

Gains in U.S. stocks on Friday were broad-based after data showed existing-home sales rose to their highest level in nearly two years in July. Sentiment was also helped by Federal Reserve chairman Ben Bernanke's comment that the prospects for a return to growth in the near-term "appear good."

The Chinese market was in consolidation mode and Shanghai's benchmark index was expected to stay near the 3,000 mark, said Zhang Yong, an analyst at Great Wall Securities. This after last week's roller-coaster ride when investors flocked to sell on fears of restrictions being imposed on bank lending, or buy on hopes Beijing would announce market-supportive measures.

The Chinese authorities "are serious about preventing loans from being used for stock market buying. They also are serious about using 'moderately loose' monetary policy to promote growth. We expect regulatory policy and moral suasion to be the tools for accomplishing both ends," said ING in a research note.

In Australia, metals and mining stocks were higher on Friday's rally in commodity prices, with Rio Tinto up 4.6%, BHP Billiton up 4.0% and Alumina 5.6% higher.

The Australian Financial Review also reported Monday that Rio Tinto Chief Financial Officer Guy Elliott had reportedly said the miner was in the very early stages of talks with Aluminum Corp. Of China Ltd., or Chinalco, over a possible bauxite and alumina deal. Chinalco shares were up 3.1% in Hong Kong. Other regional metals plays were also gaining. Yunnan Copper Co. was up 5.9%, Jiangxi Copper Co. was up 6.6% and Sumitomo Metal Mining Co. was 3.5% higher.

In Japan, Toyota Motor was up 3.0% while Honda Motor was 3.2% higher with Nissan Motor up 2.0%. Japanese auto stocks were benefiting from the yen's weakness, due to their large offshore revenues.

In Korea, financial and exporter shares were rising, with Shinhan Financial up 4.5%, Woori Finance up 3.2%, Samsung Electronics 2.9% higher and Hyundai Motor adding 4.9%.

Thai shares were higher after the country posted second-quarter gross domestic product growth of 2.3%, from the quarter before, improving from the first quarter's revised 1.8% contraction.

Philippine shares were surging, with the gains in overseas markets spurring a recovery after the benchmark index lost 4.6% last week. The market was also playing catch up with Asian shares' gains on Friday, when the Philippines was on a public holiday. Property developer Megaworld was up 11%, while Manila Electric was up 8.2%.

In foreign exchange markets the yen was weaker against the U.S. dollar and euro as rising equities spurred selling of the safe-haven unit. The U.S. dollar was at Y94.79, from Y94.36 in New York Friday, with the euro at Y135.96 from Y135.21. The euro was flat against the U.S. dollar at $1.4337. The Australian dollar was at US$0.8396, after earlier breaching US$0.84 to touch a high of US$0.8414.

Some analysts doubted the euro would rise much further from here.

"The real question on everyone's lips is whether the global outlook and the European backdrop is strong enough to warrant the high level for the currency. Yes, the world looks better than it did last week, but is it strong enough to see currencies break into new ranges?" asked Bank of NZ strategist Danica Hampton.

Lead Japanese government bond futures were lower on weakness in U.S. Treasurys on Friday, and higher stocks in Asia. The contract was down 0.27 points at 138.93 while the 10-year cash bond yield was up 2.5 basis points at 1.330%.

Mizuho Securities analyst Masashi Shimominami said that the 10-year JGB yield may rise to 1.390% this week as U.S. and Japan stock prices remained on an upward trajectory.

"Data have shown that the U.S. economy is picking up and investors have become eager to take risks. Treasurys will likely be sold further, which in turn could drag down demand for JGBs," he said.

Base metals were off to a strong start to the week. LME three-month copper was at $6,360 per ton, up $100 from Friday's London kerb, while three-month aluminum was at $1,952, up $26.

Spot gold was steady after rallying to a one-week high Friday. The yellow metal was at $952.90 per troy ounce, down 80 cents from the New York close.