Asian markets rebounded strongly today, reversing their gut-wrenching plunge as investors welcomed the surprise interest rate cut by the US Federal Reserve to shore up the sagging American economy.
But analysts said volatile swings were expected to linger in regional trading for some time because the Fed's quick action, at an emergency meeting yesterday, was seen by some traders as a sign American authorities view the US credit crunch as a very serious problem.
"The Fed's action provided a very positive surprise," said Tsuyoshi Segawa, strategist at Shinko Securities in Tokyo.
"But people are also starting to think that things may be so bad they needed to act."
Japan's Nikkei 225 index jumped 3.4 per cent in the morning session, recouping some of its 9.3 per cent loss the last two days. Australia's benchmark index rebounded 5.1 per cent, snapping a 12-day losing streak.
In Hong Kong, the Hang Seng index - which had plummeted 13.6 per cent Monday and Tuesday - surged 7.5 per cent at the opening before trimming gains to 22,945.13, up 5.5 per cent, in late morning trading.
Fears of a US recession, which would probably erode demand for Asian exports, has battered the region's markets since the start of the year. The sell-offs accelerated on Monday and yesterday amid scepticism that a stimulus package announced by US president George Bush on Friday would not do much to support growth.
Jolted by worries of a global recession, the Fed slashed its federal funds rate three-quarters of a percentage point to 3.5 per cent, the biggest reduction in this target rate for overnight loans on records going back to 1990. It also was the first time the Fed had changed rates between meetings since 2001.
On Wall Street yesterday 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 per cent. Markets were closed on Monday for a holiday in the US
In Hong Kong, where the benchmark index had plunged 22 per cent since the start of the year, investors took heart from the US 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 15per cent.
"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.
Still, analysts warned that lower interest rates would not 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.Reuse content