Singapore: Major Asian share markets rallied, with Sydney surging 7% on Wednesday after the Federal Reserve’s biggest interest rate cut in over two decades tempted investors to beaten-down equities, but recession fears lingered.
The dollar extended its losses against the euro in early Asian trade after the Fed’s emergency 75 basis-point interest rate cut wiped out the US currency’s yield advantage over its the European one.
Industrial metals, such as copper, recovered some lost ground after hefty falls this week on fears a US recession could derail demand.
The global stock market rout began early this week, triggered by concerns global economic growth was hitting a wall and financial institutions had more subprime-related writedowns to reveal.
In an effort to shore up markets, the US central bank slashed rates to 3.5% on Tuesday. Mirroring the move, the Hong Kong Monetary Authority cut its base rate by 75 basis points to 5%.
Some said the Fed’s decision — a week before a scheduled rate meeting — smelled of panic.
“A lot of people see that the Fed’s move yesterday was too little,” said Hideaki Inoue, forex manager at Mitsubishi UFJ Trust and Banking in Tokyo.
“But given that they cut just a week before this month’s meeting, it does show that the Fed realizes things are bad.”
But for now, investors were in the mood to seek out bargains, encouraged by the recovery on Wall Street, where benchmarks managed to recover from their lows after a feverish trading session on Tuesday.
Australia staged a dramatic comeback, where shares rose almost 7% — on course for their biggest daily gain in a decade. The S&P/ASX 200 index had fallen 12 sessions in a row.
“This market traditionally has been more defensive than the overseas markets, and it’s been pretty badly hit over the last few days,” said Leigh Gardner, ABN AMRO’s head of sales trading.
Miner BHP Billiton Ltd led the way, soaring 9.5% after a strong second-quarter production report.
In Tokyo the Nikkei surged 3.6%, recovering from it biggest one-day loss since the 11 September attacks on the United States. The index is still down 15% just this month alone.
Seoul’s KOSPI regained its poise following the 2-day sell-off, adding 2.9%.
Wall Street’s benchmark indices still hover close to bear market territory and the prospect of a US recession still looms.
The blue-chip Dow average ended down about 1% — way above earlier lows but still 15.5% from its October closing high above 14,000. The Nasdaq closed down 19.8% from its October 2007 closing high.
On Tuesday, the International Monetary Fund warned a significant slowdown in 2008 world economic growth appears inevitable, and the restoration of financial markets is expected to be a complex and long-drawn-out task. An IMF spokesman, Masood Ahmed, said the Fed cut was “appropriate and helpful.
“The volatile weakening experienced in many equity markets during the past few days has underscored the burden that the current financial market turmoil represents for the global growth outlook,” he said in a statement.
In the money markets, the euro climbed as much as 0.4% to the day’s high of $1.4685 in early Tokyo trade, extending its rally after surging 1.3% on Tuesday, its biggest one-day percentage gain since early 2006.
Japanese government bonds gained, pushing the two-year yield closer to the Bank of Japan’s overnight rate target on mounting expectations for a rate cut later in the year.
Analysts said the JGBs were posting gains on doubts over whether Japanese stock markets would be able to sustain a 3% jump after the Federal Reserve’s emergency slash.
The two-year yield fell 2.5 basis points to 0.5% by 0051 GMT.