Hong Kong: Asian stocks rose to a two-month high on Monday and high-yielding currencies advanced on the yen after details on a US plan to rid banks of up to $1 trillion of toxic assets improved confidence about risk taking.
The White House said it would put in as much as $100 billion into a bailout fund and give attractive financing to private investors to buy highly illiquid assets from banks, sending dealers diving back into equities and selling safe havens such as gold and US Treasuries.
Details of the plan which slowly emerged through newspaper reports over the weekend extended a global stock market rally that has lasted nearly two weeks on hopes the financial system was stabilising after some of the largest US banks said they had solid results in the first two months of the year.
Already BlackRock Inc, the largest US publicly traded asset manager, said it would take part in the plan, relieving some uncertainty as to how much private participation there would be.
“Given the extent of the crisis in the US banking sector, this is an essential step to restoring confidence, if carried out correctly. Banks need to free up capital to restore the credit cycle, and this is a key step,” said Annette Beacher, senior strategist with TD Securities in Sydney.
The Nikkei share average rose 2.9%, with technology shares providing the biggest boost.
Japan’s big bank shares were outperformers, with Mizuho Financial Group up 5.7% and Mitsubishi UFJ Financial Group, the country’s biggest bank, up 5.2%. MUFG said earlier it would cut 1,000 jobs.
The MSCI index of Asia Pacific stocks outside Japan was up 3.5%, hitting a two-month high. The energy, financial and materials sectors were the largest supports to the index.
Hong Kong’s Hang Seng index rose 3%, led by China Construction Bank’s 5.3% gain. Index heavyweight HSBC actually slipped 3.5% as its deeply discounted rights shares begin trading on Monday.
Removing bad loans from the balance sheets of US banks, which have kept financial institutions from lending more, has been viewed by economists as essential before a recovery could begin. The details on Monday took away some of the mystique as to how the US Treasury Department would get that done.
However, questions lingered as to price of the highly illiquid assets, fears about the ballooning federal deficit simmered as the stock market rally persisted and the fate of Wall Street bonuses.
“The government has to do this, but so far, every step the Treasury and the Federal Reserve have taken has been artificial. They are pumping a lot of money into the system, but that is not improving confidence among private bankers,” said Akira Takei, general manager of international fixed income investment at Mizuho Asset Management in Tokyo.
For now at least, investors were given the green light to venture back into riskier assets.
Currencies that were sold off heavily during the most violent periods of market volatility performed well. The Australian dollar rose more than 1% around $0.6980, a two-month high, and sterling strengthened by 0.5% to $1.4500.
The euro hit a five-month high against the yen, near ¥132, following remarks by European Central Bank President Jean-Claude Trichet underscoring that rates were already at low levels and may turn to unconventional measures to shore up the banking system.
US Treasuries and Japanese government bonds were under fire as stock markets picked up momentum. The yield on the benchmark 10-year Treasury note ticked up to 2.68%, up from around 2.65% late on Friday in New York.
The 10-year yield has retraced about a quarter of the decline suffered after the Federal Reserve last week stunned markets by saying it would buy about $1 trillion of long-term securities from the market, including $300 billion of Treasuries.
US crude futures rose over 1% towards $53 a barrel on Monday, bolstered by expectations that the US Treasury’s efforts to stabilise the ailing financial system would speed up a recovery of the US economy.