Tokyo: Asian stock markets reacted cautiously on Monday to a deal by US lawmakers on a massive Wall Street bailout, amid doubts about whether it can halt the worst US financial crisis since the Great Depression.
The tentative agreement, announced just hours before Asian markets opened, is designed to mop up toxic debts from struggling banks and prevent further financial chaos that could tip the world’s largest economy into recession.
Shares opened higher across much of Asia, with Tokyo’s Nikkei-225 index up 0.46 % by lunch. Singapore gained 1.42%.
But the rally soon lost steam, with some markets sliding into the red.
Hong Kong tumbled 2.0% in early trade while Sydney was down 0.3% by midday. Seoul lost 0.6%, Shanghai was closed for the start of a week-long national holiday.
There were still doubts about the proposed US financial rescue package, which needs to be approved by Congress and offers no guarantee of an end to the credit crunch that has ravaged global markets, dealers said.
“Lawmakers continue to be anxious about being taken for a ride and want to retain a degree of control,” Jan Lambregts, head of research for Asia at Rabobank Global Financial Markets, told Dow Jones Newswires.
“The risk of a staggered or phased approach is that the punch is weakened too much and the crisis allowed to linger.”
Investors were unsettled by signs of widening problems in the European financial sector, with Belgian-Dutch giant Fortis and British mortgage lender Bradford and Bingley facing likely nationalisation.
The US bailout plan, worth up to $700 billion, would be the largest government economic intervention since the Great Depression of the 1930s, and aims to shore up an economy in the face of a severe housing slump.
US Treasury Secretary Henry Paulson said the package “gives us the flexibility to unclog our financial markets (and) increase the ability of our financial institutions to deliver the credit that will help create jobs.”
Democratic lawmakers warned US financial firms that they would be under stricter supervision from now on.
The measures laid out in the bill include the immediate release of $250 billion to enable the government to buy up troubled assets.
Investors still want to see the details of the bailout, said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC.
The tentative deal on the rescue plan provided a boost to the dollar, while worries about problems in the European banking sector weighed on the euro, dealers said.
The dollar firmed to 106.77 yen in Tokyo morning trade from 105.95 in New York late Friday. The euro slipped to $1.4499 from 1.4613.
The greenback “should receive a short-term boost” from the $700 billion bailout reached over the weekend by US lawmakers, NAB Capital strategist John Kyriakopoulos wrote in a note to clients.