(Adds markets, updates prices)
By Louise Heavens
SINGAPORE, Feb 4 (Reuters) - Asian stocks rose on Monday,
extending earlier gains, as Microsoft Corp's <MSFT.O> $45
billion bid for Yahoo <YHOO.O> and China's purchase of a stake
in takeover target Rio Tinto boosted investor optimism over
share valuations.
Stock markets in Tokyo, Hong Kong, Seoul and Taiwan rose
between 2 and 4 percent while Shanghai <> climbed 8
percent -- its biggest daily gain since June 2005 -- as the
government approved the launch of two stock funds by domestic
mutual fund firms in an apparent bid to prevent the local stock
market from sliding further. []
Shanghai's market is down 12 percent so far this year.
European markets were seen notching up gains, with
financial bookmakers in London forecasting Britain's FTSE 100
<>, Germany's Dax <> and France's CAC-40 <> to
open between 0.4-0.7 percent higher.
But Japanese government bond futures fell more than half a
point as a 2.7 percent jump in Tokyo's Nikkei <> weakened
appetite for safe-haven debt.
Crude oil <CLc1> drifted lower to around $88.785 a barrel
in Asian trade, adding to a 3 percent drop on Friday, after
President George W. Bush's gloomy assessment of the U.S.
economy and weak employment data stoked recession fears.
Stocks shrugged off the economic news, taking the huge M&A
deals as a sign that there was more value in some stocks than
had been thought. Stock markets around the world have taken a
beating this year on fears that a U.S. slowdown and a credit
crunch would hit company earnings and bring large takeover
deals to a halt.
"People were getting sceptical about big deals due to a
spreading credit market crunch, so a possible M&A of top global
companies is helping shore up investor confidence," said Kim
Joong-hyun, an analyst at Goodmorning Shinhan Securities in
Seoul.
MSCI's All Country index <.MIWD00000PUS>, which was up 0.4
percent by 0603 GMT, is still down more than 6 percent this
year.
MSCI's measure of Asian stocks excluding Japan
<.MIAPJ0000PUS> rose 2.3 percent.
MINERS GLEAM
Shares on Wall Street <> rose on Friday, with the
Nasdaq <> recording its best weekly jump in 18 months as
technology shares rallied on the Yahoo bid.
Another sentiment boost came from plans by a group of large
banks' joint effort to shore up Ambac Financial Group <ABK.N>,
a large bond insurer battered by the credit crunch.
[]
Australian shares <> rose, with Rio Tinto <RIO.AX>
ending up 0.6 percent, albeit off earlier highs, in the first
trading session in Australia since China teamed up with U.S.
aluminium maker Alcoa <AA.N> to buy a $14 billion stake.
That could derail BHP Billiton Ltd's <BHP.AX> efforts to
take control of Rio. BHP Billiton's shares rose 2 percent, with
some investors thinking that if the deal is scuppered BHP might
now not end up overpaying for Rio. []
All eyes are on BHP, which has until Feb. 6 to launch a
formal bid.
"It makes it more complicated for BHP, but it doesn't mean
that there is another bidder there. It really looks like these
guys just want a seat at the table, maybe some assets," said
Steve Robinson, portfolio manager at Alleron Asset Management.
Shares in Chalco <601600.SS> <2600.HK>, whose parent is
Chinalco, surged 10 percent in Hong Kong and Shanghai.
INTERNET BUZZ
Asian Internet companies, such as Japan's Softbank Corp
<9984.T>, which owns 3.9 percent of Yahoo Inc in terms of
voting rights, and China's Alibaba <1688.HK>, surged more than
15 percent after Microsoft's takeover bid for Yahoo raised
expectations that Microsoft might make additional purchases in
Asia to expand its Internet market in the fast-growing region.
[]
"Microsoft's bid to expand its U.S. Internet market through
a possible Yahoo buy shows that it's also a possible scenario
it may attempt to buy Asian Internet companies as well,"
Prudential's Park Han-woo said.
The dollar steadied, holding at around $1.4822 per euro
<EUR=> after recovering from a near-record low late last week
as a surprise rebound in the factory sector offset data showing
the U.S. economy's first labour market contraction in 4-
