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Asia Rebounds After US Rate Cut

CNBC.com
Wednesday, 23 Jan 2008 | 5:09 AM ET

Asian shares rallied on Wednesday after the U.S. Federal Reserve's biggest interest rate cut in over two decades, but nagging fears of a U.S. recession prompted many indexes to give up much of their early gains.

In a rare policy move outside of its ordinary meetings, the Fed cut interest rates by 75 basis points to 3.5 percent, its biggest cut in more than 23 years. U.S. stocks ended just a little over 1 percent lower Tuesday, but the decline was shallower than feared as the rate cut helped stabilize global markets after a two-day selloff.

Major markets in Asia are still technically in bear territory. A common definition of a bear market is a fall of around 20 percent over a recent period or from a recent peak, characterized by a pessimistic outlook.

A stockbroker watches his terminal during trading in Bombay, India, Thursday, May 18, 2006. Indian shares plunged Thursday, with the benchmark stock index tumbling 6.8 percent, or more than 800 points, its biggest point drop ever, largely on fears of higher taxes on foreign funds that invest in Indian stocks. (AP Photo/Rajesh Nirgude)
Rajesh Nirgude
A stockbroker watches his terminal during trading in Bombay, India, Thursday, May 18, 2006. Indian shares plunged Thursday, with the benchmark stock index tumbling 6.8 percent, or more than 800 points, its biggest point drop ever, largely on fears of higher taxes on foreign funds that invest in Indian stocks. (AP Photo/Rajesh Nirgude)

Since its peak on June 22, 2007, the Nikkei 225 Average is down about 28.6 percent. Hong Kong's Hang Seng Index is off about 20.8 percent since its peak on November 2, 2007 and Australia is 19.2 percent off its November 2, 2007 high.

In Tokyo, the Nikkei 225 Average rose 2 percent as investors snapped up shares on relief
after a U.S. Federal Reserve interest rate cut, helping shares
rebound from their biggest one-day fall in more than six years. But worries about further slides on Wall Street and fears that more measures may be needed to stave off a U.S. recession combined with a higher yen to pare gains, with banks such as Mizuho Financial Group off earlier highs.

South Korea's KOSPI rose 1.2 percent, but pared initial gains of more than 3 percent amid unabated worries over a U.S. recession. The government's fresh assurances that it would take swift measures, including early enforcement of national pension fund's stock investment plans, should the local financial system face a credit squeeze, did not seem to help.

Australia's S&P/ASX 200 Index closed 4.35 percent higher, ending a 12-day losing run. Bargain hunters, counting on further rate cuts by the Fed, sent the index surging early in the session. The market came off its highs after data showed Australia's core inflation rate rose at its fastest pace in 16 yearsin the fourth quarter, adding to pressure on the central bank to lift interest rates, despite unrest in global markets. Resource counters led the advancers, with BHP Billiton gaining over 9 percent.

Hong Kong stocks rebounded 10.7 percent, snapping a two-day selling spree that had taken Chinese plays to their worst performance in a decade. China Life, the country's top life insurer, climbed 15.8 percent and rival Ping An Insurance gained 9.6 percent.

Singapore's FTSE Straits Times Index weaved in and out of positive territory after jumping as much as 3.7 percent at the start of trade.

And China's Shanghai Composite Index's managed to close 3.1 percent higher, despite volatile trading. On Tuesday night, Bank of China released a statement saying its post-tax profit rose last year, rejecting a newspaper report that its 2007 earnings might drop because of its exposure to U.S. subprime loans.