Markets in Asia jumped Monday after Larry Summers dropped out of the race for Fed chair.
HONG KONG (CNNMoney)
Australian markets gained 0.8% in morning trading and China stocks rose, led by a 1.5% surge in Hong Kong. Singapore stocks rallied 1.5%, Taipei advanced 1.3% and Korean stocks rose 0.6%. The Tokyo Stock Exchange is closed for a holiday. The U.S. dollar index extended losses, dropping 0.5%.
The Summers announcement comes before a Fed policy meeting that is widely expected to provide clarification on when the central bank will begin to scale back the massive economic stimulus programs that have fueled growth and juiced markets since the global financial crisis five years ago.
Now that Summers, a controversial pick, has stepped out, the "market interpretation is that there is less sense of urgency to unwind QE," said Michael Liang of Foundation Asset Management. "The market in a way has been affected by [the idea of] tapering. Now it's more of a mild situation ... In the short run, I think the pressure is off."
Expectations of less aggressive Fed tapering could have the biggest impact in emerging markets, where investors had been pulling their money and returning to the U.S. in search of higher yields.
"As market expectations adjust to less aggressive Fed tapering, this should reduce the immediate risk of significant capital outflows from Asia, providing significant relief for those economies with current account deficits that have faced balance of payments pressures," Nomura economists wrote in a note. Those countries include India, Indonesia, Malaysia and Thailand.
The U.S. dollar's drop is "probably more of a knee jerk reaction," Liang said. "By taking less aggressive monetary policy, this will support U.S. economic growth, which in turn will support an even stronger dollar."
Janet Yellen is now considered the frontrunner to lead the Fed when the term of current Chairman Ben Bernanke ends in January. Before the appointment can be made official, the Senate is tasked with holding confirmation hearings and voting on the nominee. 
First Published: September 15, 2013: 11:56 PM ET
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