By Rae Wee

SINGAPORE (Reuters) –

Asian stocks defy global trends, continuing a rally on Thursday fueled by optimism over China’s stimulus package, despite signs of waning enthusiasm.

The sea of green across equities in Asia came even as Wall Street closed lower overnight, and global stock indexes gave up earlier gains.

“After such a strong run in the past few days, one could argue the selling was largely driven by profit-taking, while others suggest that the PBOC’s policy stimulus will not significantly lift consumption,” said Chris Weston, head of research at Pepperstone.

Nevertheless, MSCI’s broadest index of Asia-Pacific shares outside Japan rose more than 1% to a two-year high on Thursday, with Japan’s Nikkei surging 2.4%.

Hong Kong’s Hang Seng Index advanced 1.5%, and the mainland CSI300 blue-chip index reversed early losses to end 0.3% higher.

Also boosting sentiment, Bloomberg News reported that China might inject up to 1 trillion yuan ($142.39 billion) into major state banks to enhance their capacity to support the struggling economy.

In broader markets, investors focused on upcoming speeches from Federal Reserve policymakers, including Chair Jerome Powell, which could provide insights on the U.S. rate outlook.

The release of the core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, is set for Friday.

“I don’t expect an excessive reaction, but the direction will be there,” stated Jeff Ng, head of Asia macro strategy at SMBC, regarding Friday’s data. “If prices are sticky, it may dampen expectations for a 50-basis-point (rate cut).”

Markets currently anticipate a 62% chance of a 50bp cut at the Fed’s November meeting and expect a total of 77bps in cuts by year-end.

Shifting views on the Fed’s easing measures have kept the dollar mostly stable over the past month, but it rebounded on Thursday after falling earlier in the week as China’s support measures increased risk appetite, leading traders to buy China-linked assets such as the Australian and New Zealand dollars.

The Aussie was up 0.18% at $0.6835, while the kiwi dropped 0.06% to $0.6257.

Against the dollar, the euro and sterling retreated from recent peaks, trading at $1.1137 and $1.3324, respectively.

The offshore yuan ticked up 0.06% to 7.0277 per dollar, after briefly strengthening past the key psychological level of 7 per dollar in the previous session.

“Rate cuts should weigh on the RMB, but may be offset by equity inflows,” noted DBS analysts. “Still, China’s economic outlook remains fragile, and sustained RMB gains are viable only if regional currencies appreciate against the USD.”

In commodities, oil prices edged higher, with Brent crude futures up 0.27% at $73.66 a barrel and U.S. crude rising 0.2% to $69.82 per barrel.

Spot gold remained steady at $2,659.56 an ounce, following a record high on Wednesday.