Hong Kong: Asia stocks struck two-month highs on Tuesday and higher-yielding currencies jumped against the yen as Washington’s plan to relieve banks of toxic debt spurred investors to pick up riskier assets.
The gains in major Asian equity markets followed a 7% surge in the US S&P 500, which was also supported by a surprise rise in home sales that spurred hopes a recovery is taking hold in the battered housing market at the heart of the global credit crisis.
Financial shares extended their rally after investors cheered the US Treasury’s plan to free banks of up to $1 trillion in troubled mortgage securities and other loans, part of an array of measures designed to jump start lending and the economy.
Major European indexes were expected to open up between 1% and 1.7%, financial bookmakers said.
Oil prices dipped 15 cents to $53.65 a barrel after reaching a four-month high the previous day.
The revival in risk-taking boosted currencies such as the Australian and New Zealand dollars against the yen as carry trades - borrowing in low-yielding currencies and buying higher-yielding ones - showed signs of making a comeback.
As financial markets have stabilised, gauges of volatility have dropped and made carry trades seem more appealing.
The MSCI index of Asia-Pacific shares outside Japan climbed 2%, taking gains to 28% from the five-year low hit last November.
But analysts were cautious about saying whether this rebound in stocks was the definitive one.
“Even though the market rally seems to be a rather powerful one and may last in the short term, we would remain cautious on a more medium-term basis. In Asia, the data flow remains very gloomy,” said market strategists at Calyon in a note to clients.
Asian currencies edged up and have recovered somewhat as foreign investors slowly shifted money back to the region.
Japan’s Nikkei share average climbed 3.3% and struck a two-month high. But the rebound in stocks showed some signs of running out of steam.
The Nikkei’s 21% rise from its lows hit earlier this month meets the traditional definition of a bear market rally, and some technical indicators suggested the benchmark index has reached overbought levels.
S&P futures were down 0.2%, pointing to a weaker start on Wall Street.
Safe-haven government bonds were on the defensive as global stocks rallied, but they have been supported by extraordinary measures by central banks to buy large chunks of debt outright to keep a lid on market yields.
The purchases, which in some cases have meant outright monetisation of swelling government budget deficits, serve as one means of helping economic growth with short-term interest rates already near zero.
The dollar slid back towards a two-month low hit against a basket of major currencies last week when investors seized on the Federal Reserve’s decision to buy large amounts of Treasuries as a sign of the erosion of the world’s reserve currency.
The comments suggest that big holders of dollar reserves, such as China, are mulling alternatives in considering a big shift in the global financial architecture that has ruled the post-World War Two period.