(Repeats from last week)

By Kevin Plumberg and Eric Burroughs

HONG KONG, April 9 (Reuters) – Asian equity markets struck a six-month high this week and have outpaced gains in other parts of the world on hopes that China’s budding economic recovery will spread through the region, helping offset the damage from collapsing exports.

Sectors that tend to outperform in cyclical upturns — technology, materials and consumer discretionary — have been leading the charge, coinciding with reduced foreign portfolio outflows from the region.

In one positive sign, the rally has coincided with a pick-up in trading volumes. But with exports still tumbling by double-digit figures, the earnings outlook poor and credit markets still tight, this rally is shaping up as a bear market blip.

More signs of a sustained economic recovery are likely needed for a more robust stock rebound.

Below are graphics and analysis on the positive and negative signals coming from the Asian equity rally. Click on the links below to see the graphics.

ASIA STOCKS OUTPERFORM ON CHINA RECOVERY

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Since the end of February, the MSCI APXJ jumped as much as 26 percent versus a 16 percent rise in world stocks .MIWD00000PUS, primarily driven by expectations China’s $587 billion on stimulus spending and torrid loan growth will generate demand for neighbouring exports.

Technology shares .MIAPJIT00PUS have powered the rise. Outside of China, Taiwan’s tech-heavy TAIEX index has been the biggest gainer of major equity markets this year, with a rise of more than 5 percent as local companies have received “rush orders” from China for electronics.

Even in Japan, where exports have collapsed, the pace of decline in shipments to China slowed in February.

In March, China’s manufacturing PMI rose for a fourth month and registered expansion for the first time since September. Bank lending hit a record high that month, according to local reports.

OUTFLOWS FROM ASIA EX-JAPAN SLOW

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One-year forward valuations in Asia ex-Japan fell to a cycle low in November, below 10 times expected earnings, shortly after the pace of portfolio outflows from the region slowed.

P/E ratios have since continued to climb but the market is still widely viewed as being full of bargains.

In Japan, price-to-book value of the Nikkei share index .N225 has been below that level for three months running, going as low as 0.81 — a very rare development for a developed market. By contrast, the price-to-book on the S and P 500 .SPX has only briefly been below one — in 1982 — in the past 32 years.

Meanwhile, Asia ex-Japan funds have seen new investment for four consecutive weeks, according to fund tracker EPFR Global.

CASH HOLDINGS SLOWLY COME DOWN

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If fear drove investors to increase the allocation towards cash in their portfolios, then greed for higher returns is the only thing that would drive them to reduce it.

Net assets of U.S. institutional money market funds as a percentage of the Russell 3000 reached 35 percent in March before easing a bit to below 30 percent.

Yet that remains very high when compared with levels around 8 percent seen before the financial crisis began in 2007.

RALLY ON RISING VOLUMES

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While stocks have given back some of their gains, the move up was on the back of the first sustained rise in trading volumes since the sell-off last year. Market gains on rising volumes give more credence to the move. When Nikkei futures jumped 3.7 percent last Thursday, it was on the biggest volume since mid-December.

Volumes had plunged across markets late last year as investors were spooked by the massive market volatility last October and November. Open interest in equity futures has also climbed during the rally, another sign that investors are building up longs.

BUT CREDIT IS LAGGING

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One worrying sign is that Asia stocks have run ahead of the improvement in credit markets, a move that breaks from history as credit markets tend to lead the cyclical recoveries in equities. In the past month, the five-year iTraxx index of Asia ex-Japan investment grade credit has tightened about 150 basis points to a low of 305 basis points, but that is still above the tightest levels in January at 278 basis points.

By contrast, the run-up in the MSCI Asia Pacific ex-Japan appeared to lead the recovery in credit markets and went to the highest since mid-October when the iTraxx index was closer to 260 basis points. Until credit markets recover more, which depends in part on better investor confidence in financials, the equity rebound will likely be on shaky footing. (Editing by Kazunori Takada)