By Dominic Lau
TOKYO (Reuters) - Australian shares climbed to a five-year peak on Monday, taking cues from the U.S. S&P 500's (.SPX) record high as investors bet the Federal Reserve will extend its cheap money policies into next year.
The change in expectations followed a 16-day shutdown of the U.S. government that could cloud the economic outlook and make the Fed wary to scale back its $85 billion a month bond-buying program this year as many had expected. This kept the dollar on the back foot.
Investors face a deluge of U.S. data this week as government departments reopen, with the September nonfarm payrolls report due on Tuesday.
"Such strong readings would again ignite a debate on an imminent start of U.S. tapering, but given that the full impact of the recent shutdown may take some further time to emerge, we continue to see tapering in first quarter next year," analysts at Societe Generale wrote in a note.
Australian shares (.AXJO) scaled a five-year peak, while MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.2 percent to a five-month high.
U.S. S&P 500 E-mini futures added 0.1 percent in early Asian trade on Monday, signaling a further rise for the market if the gains are maintained through the day.
The benchmark S&P 500 U.S. index rose 0.7 percent on Friday to close at a record high for the second straight day, capping its biggest weekly gain in three months on stronger-than-expected earnings from the likes of Google (GOOG.O) and Morgan Stanley (MS.N).
Of the 98 S&P 500 companies that have so far reported third-quarter earnings, two-thirds either beat or met market expectations, according to Thomson Reuters StarMine.
In terms of valuations, the S&P 500's 12-month forward price-to-earnings ratio stood at 13.9, in line with its 10-year average of 14 and slightly above the Nikkei's 13.5 and the pan-European STOXX Euro 600 (.STOXX) index's 12.7, data from Thomson Reuters Datastream showed.
The dollar index (.DXY), which tracks the greenback against a basket of major currencies, was at 79.637 on Monday, not far from an eight-month low of 79.478 touched on Friday.
The dollar was steady at $1.3682 to the euro after hitting an eight-month low at $1.3704 in the previous session, and down a touch at 97.86 yen.
Barclays Capital analysts said a strong reading in the U.S. jobs data would likely pare back the expectations of the Fed delaying tapering, which would lead to a rally in the dollar.
"We forecast nonfarm payrolls to increase by 200,000 and the unemployment rate to decline to 7.2 percent. Results in line with our forecast would likely lead to a broad U.S. dollar rally, as expectations for a taper delay are pared back," they wrote in a note.
(Editing by John Mair)