Tokyo: Most Asian markets rebounded on Wednesday, reversing their recent gut-wrenching plunge as investors welcomed a hefty, surprise interest rate cut by the US Federal Reserve to shore up a sagging American economy.
But European markets were down by midday. Analysts said the market turmoil would linger for some time because the Fed’s emergency action was seen by some as a sign American authorities view the US credit crunch as a very serious problem.
“The Fed’s action provided a very positive surprise,” said Tsuyoshi Segawa, strategist at Shinko Securities Co. Ltd in Tokyo. “But people are also starting to think that things may be so bad they needed to act.”
In Hong Kong, the Hang Seng index surged 10.7%—its biggest gain in 10 years—to 24,090.17, regaining much of the 13.7% it had shed over the previous two days.
Japan’s Nikkei 225 index rose 2%, to close at 12,829.06 after tumbling 9.3% the previous two days, while India’s Sensex climbed 5.2%, recapturing nearly half its 12% losses from Monday and Tuesday.
In Shanghai, China’s benchmark index, which sank 12% earlier this week, bounced back 3.1%, and Australia’s market rebounded 4.4%, snapping a 12-day losing streak.
Fears of a US recession, which would likely erode demand for Asian exports, has battered the region’s markets since the start of the year. The sell-offs accelerated on Monday and Tuesday amid scepticism that a stimulus package announced by US President George W. Bush on Friday would prevent the economy from contracting.
Jolted by worries of a global recession, the Fed on Tuesday slashed its Federal funds rate by 75 basis points to 3.5%—the biggest reduction in this target rate for overnight loans on records going back to 1990. It was also the first time the Fed has changed rates between meetings since 2001.
On Wall Street on Tuesday, the Dow Jones Industrial Average plunged more than 450 points initially, but recouped most of its losses as the day progressed to close at 11,971.19—down 128.11 points, or 1.1%. US stock index futures showed that Wall Street was poised to fall on Wednesday. Dow futures were down 155 points, or 1.3%, to 11,796. Standard and Poor’s 500 futures were down 23.8 points, or 1.8%, to 1,285.6.
In Europe, where investors had a chance to cheer the Fed’s cut on Tuesday, the UK’s FTSE 100 was down 1%, while France’s CAC 40 slid 1.4% and Germany’s DAX was down 1.8%.
Investors in Asia were already factoring in another US rate cut of as much as a half-point when the Fed holds its regular meeting on 29-30 January, traders said. But markets could slide back if Wall Street continues to decline in coming sessions, they warned.
In Hong Kong, where the benchmark index had plunged 22% since the start of the year through Tuesday, investors took heart from the US rate cut and snapped up stocks that had fallen to attractive levels.
Francis Lun, a general manager at Fulbright Securities Ltd, estimated that the Hong Kong market had been oversold by about 15%. “It’s time to recover, but investors still need to be cautious because the fluctuation now is too big.”
Dikky Sinn and Cassie Biggs in Hong Kong contributed to this story.