Hong Kong: Asian stocks soared on Wednesday after a big bounce on Wall Street as the US Federal Reserve slashed interest rates in a bid to contain a spiralling financial crisis and risk of recession.
But a dollar rally faded as traders took profit in the wake of the Fed’s three-quarter point rate cut and better-than-expected earnings results from US investment banks (i-banks) Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc.
The US central bank’s move came amid what many analysts say is the worst financial crisis on Wall Street in decades, after a cash crunch caused venerable US i-bank Bear Stearns Companies Inc. to implode.
Shares in Tokyo closed up 2.5%, while those in Seoul rose 2.1%, Shanghai 2.5%, Sydney 4% and Hong Kong 2.26%. In India, the Bombay Stock Exchange’s Sensex rose 1.09%. Indian markets are closed on Thursday and Friday.
The Fed cut its benchmark Federal funds rate by 75 basis points to 2.25% on Tuesday, the lowest level in more than three years. That lead the Dow Jones Industrial Average to a gain of 3.51% on Tuesday.
But the market’s gains could be short-lived. Markets had been pricing in the likelihood of a full percentage point cut in the funds rate to inject more liquidity into the financial system, which is battling a credit crunch related to the US housing downturn.
The dollar initially jumped following the more restrained move, but the rebound soon lost momentum.
Some Asian stock markets also ended off their highs of the day as optimism was tempered by lingering credit jitters. Bangkok fell 0.57%, Jakarta was down 0.7% and Singapore closed flat.
In Tokyo, dealers said a rebound by the dollar against the yen eased worries about Japanese exporters’ earnings.
The Nikkei 225 index gained 296.28 points to 12,260.44. Volume dropped to 2.13 billion shares from 2.27 billion shares on Tuesday. “With most of the bad economic news seemingly having already come out, stocks continued a technical rebound, and the Nikkei may rebound to around 13,000 points,” said Yoshinori Nagano, chief strategist at Daiwa Asset Management.
In Hong Kong, dealers said gains were capped as the benchmark index faced strong resistance at the 22,000 level. They also noted rumours that a US-based hedge fund is facing a possible collapse. The Hang Seng index closed up 482.33 points at 21,866.94.
In Australia, the main S&P/ASX 200 index gained 203 points to 5,289.1. “Our market and across Asia have improved today based on the fact that the US had a strong rebound last night,” said the head of trading at Shaw Stockbroking, Jamie Spiteri. “You can take some positives from today’s move where gains have been sustainable throughout the day, which in the recent past would have subsided.”
In Shanghai, the Composite Index rose 92.71 points to 3,761.61. “Investor confidence was boosted after the Fed’s move as it will help support the stressed banking sector following the near collapse of US investment bank Bear Stearns,” said Wang Xiaoli, an analyst at Orient Securities.
In Seoul, dealers said stocks rose sharply in early trade. But the market trimmed some gains towards the close as skittish investors opted to wait for more and clearer evidence that the global credit crisis is nearing an end. The Kospi index ended the day up 33.48 points at 1,622.23.
In Singapore, gains failed to hold in the absence of strong positive leads and some traders opted to close their positions given a holiday-shortened trading week. The market will be closed on Friday.