U.S. October CPI flat vs 0.1 rise expected
Fed funds futures price in rate cuts by May
JGBs surge as Japan economy contracts

SINGAPORE, Nov 15 Reuters Asian stocks surged to twomonth highs on Wednesday in anticipation of stimulus in China and an end to rate hikes in the United States, while the dollar nursed steep losses suffered in the wake of a benign U.S. inflation report.

MSCI39;s broadest index of AsiaPacific shares outside Japan was up 2.3 by the midsession break in Hong Kong, hitting its highest since midSeptember and on track for its largest daily gain since January.

The Hang Seng rose nearly 3, breaking above its 50day moving average, while Japan39;s Nikkei was up 2.3.

Bond markets from Australia to South Korea marked their strongest gains since March, although rallies in Treasuries and in U.S. and European equity futures petered out into steady trade.

U.S. headline consumer prices were flat in October, against expectations for a 0.1 rise, data showed on Tuesday. Core CPI, at 0.2, also came in below a forecast of 0.3.

I think the CPI number has just pushed the last person to cover their shorts, Naka Matsuzawa, Nomura39;s chief macro strategist, said on the phone from Tokyo.

He sees a more complicated process ahead, where stock market exuberance eventually collides with bond market expectations that an economic slowdown will drive rate cuts.

The bond market is probably more vulnerable than equities, he said.

Overnight, the Nasdaq jumped 2.4 and the…