Asian Markets Recover, U.S. Cuts Int. Rate
By Yuri Kageyama
Associated Press Business Writer
January 23, 2008
CBNNews.com - TOKYO - Most Asian markets rebounded Wednesday, reversing their recent gut-wrenching plunge as investors welcomed a hefty, surprise interest rate cut overnight by the U.S. Federal Reserve to shore up the sagging American economy.
But analysts said volatile swings were expected to linger for some time because the Fed's quick action, at an emergency meeting, was seen by some as a sign American authorities view the U.S. credit crunch as a very serious problem.
"The Fed's action provided a very positive surprise," said Tsuyoshi Segawa, strategist at Shinko Securities Co. in Tokyo. "But people are also starting to think that things may be so bad they needed to act."
As the day progressed, many Asian markets trimmed their initial, robust gains, and some even dropped into negative territory.
Japan's Nikkei 225 index was up 1.7 percent in afternoon trading after jumping 3.4 percent earlier, recouping some of its 9.3 percent loss the last two days. Australia's benchmark index rebounded 4.4 percent, snapping a 12-day losing streak.
In Hong Kong, the Hang Seng index - which had plummeted 13.6 percent the last two days - surged 7.5 percent at the opening before trimming gains to be up 5.3 percent by midday.
India's Sensex index jumped 4.6 percent at the opening before slipping back slightly.
Stocks in Singapore and Thailand, meanwhile, were down modestly.
Fears of a U.S. recession, which would likely erode demand for Asian exports, has battered the region's markets since the start of the year. The sell-offs accelerated Monday and Tuesday amid skepticism that a stimulus package announced by President Bush on Friday wouldn't do much to support growth.
Jolted by worries of a global recession, the Fed on Tuesday slashed its federal funds rate three-quarters of a percentage point to 3.5 percent, the biggest reduction in this target rate for overnight loans on records going back to 1990. It also was the first time the Fed has changed rates between meetings since 2001.
On Wall Street Tuesday, the Dow Jones industrial average plunged more than 450 points initially but recouped most of its losses as the day progressed to close at 11,971.19, down 128.11 points, or 1.1 percent.
U.S. stock index futures showed that Wall Street was poised for another drop Wednesday. Dow futures were down 86 points, or 0.7 percent, to 11,865. Standard & Poor's 500 futures were down 12.8 points, or 1 percent, to 1,296.5.
In Hong Kong, where the benchmark index had plunged 22 percent since the start of the year, investors took heart from the U.S. rate cut and snapped up stocks that had fallen to attractive levels.
Francis Lun, a general manager at Fulbright Securities, estimated that the Hong Kong market had been oversold by about 15 percent.
"It's time to recover, but investors still need to be cautious because the fluctuation now is too big," he said.
The Fed's move also helped lift the dollar, which rose to 106.90 yen late morning in Tokyo, up from 106.48 yen late Tuesday in New York - another bit of good news for Japanese exporters, whose earnings are helped by a stronger dollar.
Still, analysts warned that lower interest rates won't fix bad credit problems - and usually take several months to have an effect on an economy.
"We consider the Fed's rate cut still insufficient for the global financial markets to completely recover and help the Japanese stocks to fully rebound," Credit Suisse chief strategist Shinichi Ichikawa said.
Copyright 2008 by The Associated Press. All Rights Reserved.
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