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Asian Markets Rally on Hopes for Bank Rescues

Asian stocks bounced from a four-year low Monday after policymakers around the world took increasingly bold steps to rescue the financial system, including guaranteeing bank deposits and taking stakes in banks.

However, the yen stayed firm against the U.S. dollar and gold also edged up, highlighting investor caution and an unwillingness to dive back into risk-taking just yet, especially with credit markets still barely functioning.

U.S. stock futures rose 4.9 percent after the U.S. government said it would inject capital directly into financial institutions, and European leaders hatched a plan that included buying
bank debt.

Global equity markets were gutted last week, and investors were even liquidating positions in safe havens like government bonds for cash, on dwindling hope that anything could be done to keep the global economy from sliding into recession.

Japan's stock market plunged 24 percent last week, twice its losses in the week of the 1987 crash, while U.S. stocks dropped 18 percent, the biggest weekly decline ever. Japan's markets are closed for a public holiday. They will reopen Tuesday.

Goldman Sachs, one of the two biggest commodity traders on Wall Street, dramatically cut its price forecasts across oil, base metals and grains on Monday, warning that crude prices could fall as a low as $50 a barrel.

"We have underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand," its commodity markets research team lead by Jeffrey Currie said in a report dated Oct. 13.

CNBC.com Pre-Markets

But they also said that recent events strengthened their argument for a structural bull market, as commodity producers are "highly dependent upon access to capital and were already struggling to grow production capacity before recent events."

U.S. crude oil futures rose over $2 to trade just below $80 a barrel in the Asian session Monday in a relief rally as the leaders in the United States and euro zone took steps to rescue the banking sector.

The euro rose against the dollar and the yen as European leaders agreed on steps to rescue the banking sector, in a bid to unfreeze the credit markets.

South Korea's KOSPI ended 3.8 percent higher, with banks and exporters rising on strengthening hopes over central bankers' and government leaders' measures over the weekend to solve the financial crisis.

Australian shares closed up 5.55 percent, ending a hair-raising three-day losing streak, after the government extended a blanket guarantee to all bank deposits and breathed some life back into battered bank stocks. The market, which suffered its heaviest one-day fall since the 1987 market crash on Friday, climbed as much as 6.1 percent as investors greeted the guarantee as a rare piece of good news amid gloomy talk of global recession and market meltdown. The benchmark S&P/ASX 200 Index closed up 220 points, led by the four major banks: Australia and New Zealand Banking Group, National Australia Bank, Commonwealth Bank of
Australia
and Westpac Bank.


Hong Kong shares gained 10.2 percent after a skittish session, rebounding from their worst weekly decline in more than a decade and propped up by worldwide measures to support markets amid the global financial turmoil. But the Hang Seng Index had earlier dropped 0.3 percent in the session amid mixed signals from regional markets. Shares in PCCW closed 1.8 percent lower after the phone company halted the sale of a stake in its new HKT unit, citing the market upheaval. Chinese financial stocks rebounded from a week of steep declines on talk that the nation's sovereign fund will embark on another round of buying to support the mainland markets.

Singapore's Straits Times Index closed 7.2 percent higher after having a seesaw session. Shares in container shipper Neptune Orient Lines jumped 13.5 percent as investors cheered its move to abandon plans to buy Germany's Hapag-Lloyd.

China's stock market rebounded from morning losses as bank shares jumped, encouraged by rallies in financial shares across the region after U.S. and European policy makers said they would take fresh steps to try to resolve the financial crisis. The Shanghai Composite Index initially lost over 3 percent. But buying in Chinese bank shares was encouraged by the fact that they had dropped near levels where a government fund bought small amounts of shares in top banks late last month, as part of an official rescue plan for the market. Industrial & Commercial Bank of China, the biggest bank, was up 7.5 percent on talk that the government would soon buy its shares again, or had already done so. The Shanghai Composite Index closed 3.7 percent higher.