Hong Kong: Asian stocks and the US dollar rallied on Friday as US policymakers met to design a broad plan to resolve a crisis that has threatened the global financial system and reshaped the banking industry.
US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke would work through the weekend on a plan that congressional leaders said would focus on dealing with illiquid assets - the toxic source that has shattered balance sheets, pushed Lehman Brothers to file for bankruptcy protection and prompted the US bailout of American International Group this week.
Government debt prices, which have served as a safe harbour for investors throughout the 13-month-old crisis, tumbled on news of the plan.
However, US Treasuries with maturities less than a year were stable and gold prices actually rose, reflecting how a sense of caution remains embedded in markets ahead of the weekend.
The Chinese government was also actively trying to stabilise its markets, buying shares in three of the biggest state-owned banks and ditching a tax on purchases of stocks. The news propelled Shanghai’s composite index 9.3% higher after it had closed on Tuesday at a 22-month low.
Hong Kong’s Hang Seng index rose 7.1%, led by a revived financial sector. Shares of Industrial and Commercial Bank of China, China’s largest lender which has a listing in Hong Kong, rocketed up 15% and was the biggest gainer on the index.
Japan’s Nikkei share average was up 2.65% after plumbing a three-year low on Thursday. Shares of the country’s top bank Mitsubishi UFJ Financial leapt 9.2% after a volatile week.
Outside of Japan, Asia-Pacific stocks were up 2.7%, rebounding from a two-year low hit on Thursday, according to an MSCI index. The index was down 6% on the week.
In addition to the US government crisis plan in the works, efforts to thwart the crisis have been multi-pronged and global.
Central banks in the United States, Europe, Japan and elsewhere have injected massive amounts of liquidity into money markets, culminating in a coordinated offer on Thursday of $180 billion in funding.
Further, the top US regulatory body was working with Britain to crack down on abusive short selling.
The plan could involve setting up a fund to buy distressed assets from the banks, something like the Resolution Trust Corporation which was formed to buy and then sell impaired assets during the Savings and Loan Crisis a decade ago.
The US dollar rose broadly on hopes for a crisis resolution.
The euro dropped 0.5% to $1.4248, and the dollar climbed 0.7% to 106.30 yen after hitting a 3-1/2-month low around 103.50 yen on Tuesday.
The 10-year US Treasury note dropped 17/32 in price, lifting its yield to 3.62% from 3.53%.