Japan's Nikkei up 13 percent on Tuesday

October 14, 2008 12:00:52 AM PDT
Asian markets soared for a second day Tuesday, led by a stunning 13 percent jump in Tokyo, after Wall Street rallied from its worst week ever on optimism that government rescue efforts will heal the crippled global financial system.

Japan's benchmark Nikkei 225 index surged 1,127.11 points, or 13.62 percent, to 9,403.54 by the afternoon-- a stunning reversal after plunging nearly 10 percent Friday. Tokyo financial markets were playing catch-up because they were closed Monday for a holiday.

In Australia, the S&P/ASX200 index traded 3.7 percent higher as the government announced a plan to inject 10.4 billion Australian dollars ($7.4 billion) to strengthen the country's economy.

Hong Kong's key index gained 4.4 percent, while South Korea's market jumped nearly 5 percent. The Philippine market surged more than 7 percent and Indonesia's market -- shut half of last week due to dramatic declines -- was up more than 6 percent.

Japanese bank Mitsubishi UFJ Financial Group Inc. added more than 14 percent after completing a $9 billion deal for a 21 percent stake in U.S. investment bank Morgan Stanley.

The Asian advance came after the Dow Jones industrial average gained more than 11 percent -- its biggest one-day gain since 1933 -- in a huge overnight rally as traders reacted with relief to efforts by the U.S. government to inject capital into banks and get lending flowing again.

Late Monday, U.S. government officials and industry executives said the Bush administration will use $250 billion of the $700 billion bailout program recently passed by Congress to buy into American banks. The government initially will buy stock of nine large banks, but the program is expected to be expanded to many others.

That followed signals that European governments were putting up nearly $2 trillion to safeguard their own banks.

"The governments are ensuring that no matter what happens they're not going to allow another major institution to fail," said Nicole Sze, an investment analyst at asset manager Bank Julius Baer & Co. in Singapore. "What's happened in the last 48 hours is an extremely positive development. ... You're seeing a reversal of the panic selling, and we think a temporary bottom has been found."

In Europe on Monday, Germany's DAX ended up 518.14 points, or 11.4 percent, at 5,062.45, while France's CAC-40 finished 355.01 points, or 11.2 percent, higher at 3,531.50.

Britain's FTSE 100 gained 324.84 points, or 8.3 percent, to 4,256.90, despite some hefty falls in the banks that have accepted government help. The strong showing follows sharp falls in stock indexes worldwide last week, and as interbank interest rates remain abnormally high.

Despite Monday's sharp share price gains, investors remain skeptical that the stock markets are out of the woods. It's too early to tell if the banking measures outlined Monday will actually work or how the recent carnage in financial markets will play out in the global economy.

"I'm not convinced yet. It's a bit of a waiting game," said David Jones, chief markets strategist at IG Index.

The latest coordinated move emerged before European trading began, when top central banks -- including the U.S. Federal Reserve and the European Central Bank -- unveiled new measures to thaw frozen credit markets and bolster funding to banks. They joined the Bank of England and the Swiss National Bank in saying they would provide unlimited U.S. dollar funds to financial institutions. The Bank of Japan said it was considering similar measures.

The banks' action came after leaders of the 15 countries using the euro said Sunday they would guarantee new bank debt until the end of 2009, allow governments to help banks by buying preferred shares, and vowed to rescue important failing banks through emergency recapitalization.

The key is whether the flurry of activity can actually ease conditions in the credit markets. Despite the coordinated interest rate reductions announced last Wednesday, and massive liquidity boosts, the rates at which banks lend to each other continued to rise. That means banks were afraid to lend to each other, and raises the chance that they and other businesses won't get the credit they need to operate.

Stocks across Asia rocketed higher Monday after going into a tailspin last week amid growing worries that the financial crisis would pull the global economy into recession.

While those concerns still linger, investors were encouraged that governments appeared to be taking steps to tackle one of the core problems -- helping to revive bank-to-bank lending, which has almost ground to halt because of fears about repayment due to enormous losses from souring mortage-linked debt.

Latin America shares have been hammered by the recent global sell-off, but rebounded sharply on Monday. Brazil's Ibovespa stock index rose 14.7 percent to close at 40,829, regaining ground after losing 20 percent of its value last week.

Mexico's IPC index meanwhile gained 11 percent to close at 22,096, while Chile's benchmark IPSA index jumped 12.5 percent to 2,364 and Peru's IGBVL index rose 13.7 percent to 8,668. Exchanges in Argentina and Colombia were closed for a national holiday.

Oil continued to rise, with light sweet crude for November delivery gaining $1.98 to $83.17 a barrel in Asian trade on the on the New York Mercantile Exchange. The contract added $3.49 to settle at $81.19 overnight.

In currencies, the dollar slid to 102.24 yen.


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