* Safety rush turns to relief rally as Mideast tension ebbs
* Nikkei adds 2%, Australia hits record closing high
* Yen slides to two-week low
* Support for oil and gold hints at caution remaining
* Asian stock markets: https://tmsnrt.rs/2zpUAr4
By Tom Westbrook
SINGAPORE, Jan 9 (Reuters) - Asian stocks had their best
session in weeks on Thursday, as the United States and Iran
backed away from the brink of conflict in the Middle East and
investors reversed their flight to safety.
U.S. President Donald Trump responded to an Iranian attack
on U.S. forces with sanctions, not violence. Iran offered no
immediate signal it would retaliate further over a Jan. 3 U.S.
strike that killed a senior military commander.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS rose 1.3%, its sharpest gain in almost a month.
Hong Kong's Hang Seng .HSI and Shanghai blue chips
.CSI300 each added more than 1%, while Japanese stocks .N225
rose further, gaining 2% to their highest for the year so far.
Australian stocks .AXJO rose 0.8% to a record closing
high. Futures markets pointed to extended gains in Europe and
the United States, with S&P 500 futures ESc1 up 0.2% and
German DAX futures 0.9% higher FDXc1 .
"I think today is a bit of a relief rally," said Shane
Oliver, Chief Economist at AMP Capital in Sydney.
"Yesterday, investors were fearing the worst, that this was
the escalation now underway. The news overnight has been more
along the lines that Iran pulled its punches and Trump is toning
things down," he said, "which is seen by investors as
substantially reducing the risk of a war."
Investors quit the safe-haven Japanese yen JPY= , sending
it sliding from a three-month high to a two-week low of 109.32
yen per dollar. FRX/
Oil is cheaper than it was before the killing of the Iranian
commander, Qassem Soleimani, in Baghdad, a strike that raised
fears of an escalating regional conflict. O/R
Brent futures LCOc1 prices steadied at $65.41 per barrel,
about where they began the year.
Gold XAU= gave back sharp gains made on Wednesday but
remains dearer than before Soleimani's death, in an indication
that investors' fears have not completely evaporated. GOL/
It drifted lower to $1,544.80 per ounce.
SANCTIONS NOT STRIKES
Iran fired missiles at military bases housing U.S. troops in
Iraq on Wednesday in response to Soleimani's killing. But Trump
said no Americans were hurt and made no direct threats of a
military response in an address to the nation on Wednesday.
"Iran appears to be standing down, which is a good thing for
all parties concerned and a very good thing for the world," he
said. He announced economic sanctions on Iran without giving
details.
Iranian Foreign Minister Mohammad Javad Zarif had earlier
said the strikes "concluded" Tehran's response to the killing of
Soleimani.
Outside equities, U.S. Treasuries, which had soared in the
flight to safety a day ago also settled back, with yields on the
benchmark 10-year U.S. Treasury note US10YT=RR at 1.8685%,
after dropping as low as 1.705%.
Risk appetite was also evident in currency markets, with
China's trade-exposed yuan CNY= standing at a five-month high
of 6.9281 per dollar and the Aussie AUD= creeping higher.
"All is well - so says Trump! That is the mood today," said
Bank of Singapore currency strategist Moh Siong Sim, a reference
to Wednesday's upbeat tweet from the president.
"I think that neither side wants to have a further
escalation in tension, and both parties seem to be standing
down."
Mideast tensions ease https://tmsnrt.rs/305Wf0t
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(Editing by Lincoln Feast and Jacqueline Wong)