Currencies, stocks rally in Asia on rate cuts, swap deals

Currencies, stocks rally in Asia on rate cuts, swap deals
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First Published: Fri, Oct 31 2008. 12 16 AM IST
Updated: Fri, Oct 31 2008. 12 16 AM IST
Seoul / Kuala Lumpur: Asian stocks, bonds and currencies surged after China, Taiwan and the US cut interest rates to boost bank lending and economic growth.
South Korea’s Kospi index climbed a record 12%, led by Samsung Electronics Co. Ltd and Posco, after the US Federal Reserve agreed to provide the country with $30 billion (Rs1.5 trillion) in a currency swap. The won surged the most in 11 years.
BHP Billiton Ltd advanced 8.8% and Cnooc Ltd rose 20% as copper and oil rallied. Toyota Motor Corp. and Mazda Motor Corp. added some 11% as a weakening yen boosted the value of overseas sales.
“We’re coming from a very oversold position, so it deserved a very good bounce,” said Scott Lim, who oversees about $850 million as CEO at MIDF Amanah Asset Management Sdn in Kuala Lumpur.
The MSCI Asia Pacific Index added 9% to 87.94 as of 7.20pm in Tokyo, set to complete its biggest three-day gain since the gauge was created in 1987. Thursday’s advance pared the monthly loss to 18%.
Japan’s Nikkei 225 Stock Average climbed 10% to 9,029.76 as Softbank Corp. gained by its daily limit.
Hong Kong’s Hang Seng Index jumped 13%, led by Ping An Insurance (Group) Co. of China Ltd after China lowered its one-year lending rate. The measure is on course for its biggest three-day advance since April 1973.
Central banks across the globe are trying to ease the impact of the financial crisis on consumer sentiment and business spending. The Fed and the People’s Bank of China on Wednesday cut rates to stimulate demand, while Taiwan and Hong Kong’s central banks followed on Thursday.
The Fed said on Wednesday it agreed to provide $30 billion each to the central banks of South Korea, Singapore, Brazil and Mexico, “four large systemically important economies”, in a statement. The currency swap arrangements aim “to mitigate the spread of difficulties in obtaining US dollar funding”.
Samsung, South Korea’s largest company by market value, jumped 13% to 537,000 won (Rs20,406), the most since December 2001. Posco, the second biggest, climbed by the daily limit of 15% to 352,000 won, the steepest rise since February 2002.
The South Korean won, which two days ago sank to a decade’s low, jumped 14% to 1,250 won per dollar as finance minister Kang Man Soo said the government is seeking currency swap deals with Japan and China. Default protection costs on South Korean government debt fell by the most in more than four years, dropping 130 basis points to 435 basis points. One basis point is one-hundredth of a percentage point.
South Korea’s government bonds rose on optimism that the central bank will lower borrowing costs again once the currency market stabilizes. The yield on the 5.5% note due June 2011 fell 14 basis points to 4.38%. “The swap deal removed the biggest headache, problems of foreign currency shortage,” said Kong Dong Rak, a fixed income strategist with Hana Daetoo Securities Co. Ltd in Seoul.
Taiwan Semiconductor Manufacturing Co. Ltd, the world’s largest custom chip maker, rose 6.9% to NT$44.90 (Rs71.84) in Taipei, leading Taiwan’s Taiex Index 6.3% higher following the island’s rate cut.
Ping An, China’s second biggest insurer, climbed 19% to HK$31.10 (Rs213) in Hong Kong. Industrial and Commercial Bank of China Ltd, the world’s biggest bank by market value, climbed 13%. China’s central bank cut its benchmark lending rate to 6.66% from 6.93%. “Cutting interest rates is the most effective card you can play at this point,” said Chang In Whan, chief executive officer of KTB Asset Management Co. in Seoul, which manages $4.3 billion.
Mizuho Financial Group Inc., Japan’s second biggest bank by assets, rose 18%. Sumitomo Mitsui Financial Group Inc., the third largest, added 12%.
MSCI’s Asian index hasn’t managed a four-day advance since July. Recent rallies fuelled by governments guaranteeing bank deposits and coordinated interest rate reductions by central banks have fizzled as losses from mortgage- related investments rose to almost $680 billion. “The outlook of a weak global economy hasn’t changed,” said Hiroshi Morikawa, a senior strategist at MU Investments Co. Ltd in Tokyo, which manages the equivalent of $14 billion. “The shot of confidence from the rate cut is temporary.”
BHP Billiton Ltd, the world’s biggest mining company, advanced 8.8% to A$28.60 (Rs986.70) in Sydney. Rio Tinto Group, the third largest, gained 9.2% to A$77.32. Copper futures surged 12% in New York on Wednesday, the steepest jump in two years, while crude oil climbed 7.6% to $67.50 a barrel.
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Ian C. Sayson in Manila, Seyoon Kim in Seoul and Kim Kyoungwha in Beijing contributed to this story.
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First Published: Fri, Oct 31 2008. 12 16 AM IST