European, Asian markets rebound

LONDON - European and most Asian stock markets rebounded Tuesday as investors cheered an overnight rally on Wall Street and snapped up beaten down shares on expectations of a U.S. interest rate cut later this week.

But growing speculation that the Federal Reserve will lower a key rate by a quarter point, instead of the more aggressive half-point, kept gains in check.

European shares rose in early trading and U.S. stock index futures were mixed.

The U.K.'s FTSE 100 Index grew 1.5 percent to 5,872.50, while Germany's DAX gained 1.1 percent to 6.893.59. The French CAC rose 1.8 percent to 4,935.50.

"The FTSE rebounded this morning after yesterday's losses, led by the mining sector which is adding 20 points to the index on the back of record precious metals prices," said Nathan Miller, a trader at CMC Markets in London.

In Asia, Japan's benchmark Nikkei 225 index rose 2.9 percent at 13,478.86 while Hong Kong's blue-chip Hang Seng Index gained 1 percent to 24,291.8 after earlier rising as much as 2.8 percent. The markets — Asia's two biggest — tumbled at least 4 percent Monday on persistent fears the U.S. economy was entering a recession.

Monday's drop gave investors a chance to re-enter the market, said Francis Lun, a general manager at Fulbright Securities in Hong Kong.

In China, the benchmark Shanghai Composite Index rose 0.9 percent after tumbling 7.2 percent Monday. Stocks in South Korea, Thailand and the Philippines also rose.

Australia's benchmark index slid 2.5 percent as traders bet on a smaller-than-hoped-for rate cut when the Fed's policy planners meet Tuesday and Wednesday. Last week, the Fed slashed its key interest rate by three-quarters of a point to 3.5 percent after a plunge in Asian and European markets, which have since bounced back somewhat.

The Fed was likely to cut rates a quarter point "given the deep cut last time and that there are some signs of stabilization in the market," said Malcolm Wood, Asia-Pacific equities strategist at Morgan Stanley in Hong Kong.

That would likely disappoint Asian markets where investors banked on a bigger cut, and could trigger more selloffs later in the week, he said.

Global markets have been in turmoil this month as investors reacted to a string of bad economic news out of the United States. Asian markets are especially sensitive as their economies are heavily reliant on American consumers buying their exports.

The U.S. economy has been battered by a housing slump and credit crunch triggered by a spike in defaults on risky mortgages that has led to billions of dollars of bad assets at major American and European banks.

Sentiment got a lift from Wall Street's gain on Monday, when investors in the U.S. took a dismal new home sales report as a sign the Federal Reserve will lower interest rates. The Dow Jones industrial average rose 176.72, or 1.45 percent, on Monday to 12,383.89, while the Standard & Poor's 500 index rose 23.36, or 1.76 percent, to 1,353.97.

President Bush tried to calm the markets in his last State of the Union address Monday, stressing the government's determination to reinvigorate the moribund economy with tax rebates.

Bush urged lawmakers to approve a $150 billion (102 billion euros) plan in tax relief for families and incentives for businesses to invest in new plants and equipment. He said the American economy was robust, but warned of a rocky road ahead in the short-term.

In Hong Kong, gainers included export-related stocks such as Li & Fung, which jumped 5.7 percent. Clothing maker Esprit Holdings was up 3.4 percent.

China coal stocks listed in Hong Kong also gained on expectations that the prolonged and unexpectedly severe winter across China will drive demand for more coal. China Coal was up 1.4 percent, while China Shenhua was up 1.7 percent.

In Tokyo, steel and bank issues were among Tuesday's gainers. Kobe Steel rose 2.3 percent and Shinsei Bank jumped 9.4 percent.

U.S. stock index futures were mixed hours before New York opened trading Tuesday. Dow futures were up 11 points, or 0.1 percent, at 12,388, while S&P 500 futures were up 2.4 points, or 0.2 percent, to 1,357.1. Nasdaq Composite futures were down 6.25 points, or 0.35 percent, to 1,804.