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Asian Markets Drift Higher, BOJ Move Spurs Bonds

CNBC.com
Wednesday, 18 Mar 2009 | 7:06 AM ET

Asian stocks drifted higher Wednesday as banks extended gains, while Japanese government bonds rose after the Bank of Japan sharply increased the amount of government debt it would purchase to support the economy.

The BOJ raised its buying of government bonds by 29 percent while keeping interest rates unchanged at 0.1 percent, as the global financial crisis puts Japan on course for its longest slump since World War Two. The BOJ said it would buy 21.6 trillion yen ($219.3 billion) of government bonds a year to help smooth its market operations.

U.S. Treasurys also edged up on speculation the Federal Reserve may take the unorthodox step of buying government debt to push down interest rates as central banks around the world look for new tools to pull their economies out of recession.

The euro rose to its highest against the yen since late December as improvement in investor risk appetite buoyed the European currency. The yen also weakened against the U.S. dollar after the Bank of Japan acted to spur lending by extending banks up to $10 billion in support to bolster their depleted capital. Crude oil prices rose above $48 a barrel on the housing data, while commodity prices were mixed.

Japan's Nikkei 225 Average edged up 0.3 percent in see-saw trade, booking its highest close in five weeks as banking shares rose, although investors locked in profits in recent gainers. The Bank of Japan raised its buying of government bonds by 29 percent while keeping interest rates just above zero, as the global financial crisis puts Japan on course for its longest slump since World War Two.

South Korea's KOSPI finished half a percent higher after dipping in and out of negative territory during the session. Technology and construction issues leading gains, while a weaker won currency sent banks and airlines lower.

Australian stocks closed 0.2 percent lower, with global miner Rio Tinto falling 8.7 percent on a brokerage downgrade and amid worries over its proposed $19.5 billion deal with China's Chinalco.

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Hong Kong shares rose 1.9 percent with upbeat data on U.S. housing starts supporting broad-based gains, but Huiyuan Juice fell sharply after a report said Coke might abandon its proposed takeover of the company. China Huiyuan Juice dropped 22 percent at one point after the Financial Times reported that Coca Cola may back out of its $2.4 billion takeover bid for China's leading juicemaker after Chinese antitrust regulators indicated it would have to relinquish the brand.

Singapore's Straits Times Index was 1.1 percent higher. Water treatment firm Hyflux rose 2 percent after Credit Suisse downgraded it to "neutral" from "outperform" and cut its target price to S$0.40 from S$0.60.

China's Shanghai Composite Index climbed 0.2 percent led by coal and industrial metals, as expanding turnover indicated a rally in the past two days had drawn speculative funds back into the market. Shenhua Energy rose after climbing 4 percent on Tuesday, while Wuhan Steel also jumped.