London: European and Asian stocks rose on Wednesday in response to a concerted effort by the US Federal Reserve and other central banks to ease pressure on the world’s credit markets.
A strong Wall Street rally from Tuesday boosted global market sentiment. Yet in Asia, many analysts remained wary, pointing to recent data indicating the US economy—a vital export market—could be sliding into a recession.
Nevertheless, the overview was more bullish in Europe.
“The actions of the Fed caused a surge in financial stocks around the world, which is one of the main drivers behind the FTSE’s rise,” said Paul Chesterton, a trader at CMC Markets in London.
Reverse trend: A man takes notes in front of an electronic board showing stock information at a brokerage in Shanghai. China’s main stock index lost more than 2% on Wednesday.
The UK’s benchmark FTSE 100 traded up 1.6% at 5,783.9, while Germany’s DAX climbed 1.6% at 6,625.54. France’s CAC 40 added 2% to 4,719.83.
Stocks in Japan and Hong Kong pared gains in afternoon trading after the initial euphoria wore off.
“There is some hope that the Fed’s move can restore the stability of the financial system,” said Ernie Hon, a strategist at ICEA Securities in Hong Kong. “But over the longer-term, I think the (Hong Kong) market will continue its downtrend.”
Japan’s Nikkei 225 index closed 1.6% higher at 12,861.13 after rising as much as 3.2%. Hong Kong’s Hang Seng index pared gains to close 1.9% higher at 23,422.76.
Markets in Australia, South Korea, Malaysia and Taiwan rose, while China’s key index fell to a seven-month low.
US stock index futures were higher, suggesting that Wall Street would climb higher after the Dow Jones industrial average surged 416.66, or 3.55% on Tuesday to 12,156.81. That was it’s biggest one-day point gain since July 2002.
That surge was spurred by news that the Fed—with the European Central Bank, the Bank of Canada and the Swiss National Bank—would loan investment banks $200 billion (Rs8.1 trillion) in exchange for debt, including slumping mortgage-backed securities. The loan period is 28 days, rather than the typical overnight allotments.
The move was meant to essentially create a market for assets that investors have been too scared to buy. That freeze-up in demand had sent asset values plunging and caused huge losses for some of the world’s biggest banks.
In Tokyo, the biggest gainers were financial shares, including Mizuho Financial Group, which rose 4%. Real estate firm Sumitomo Realty and Development Co. Ltd advanced 4.4%.
But traders in Tokyo and Hong Kong believed the rallies in their markets were temporary. In Australia, the benchmark S&P/ASX 200 rose 2.4% to 5,257.9. In South Korea, the Kospi index climbed 1.1% to 1,658.83.
Chinese stocks fell to their lowest level in more than seven months. The Shanghai Composite Index lost 2.3% to close at 4,070.12.
Malcolm Foster in Bangkok contributed to this story.