January 29, 2008

US rate cut hopes boost Asian stocks

Many Asia Pacific stock markets bounced back strongly on Tuesday, tracking overnight gains on Wall Street on fresh optimism that the US Federal Reserve will cut interest rates on Wednesday, though gains trailed off as trading drew to a close.

Gold and platinum hit fresh highs as production in South Africa looked like it will continue to be disrupted by labour troubles and power shortages. Gold for immediate delivery hit $929.84 an ounce and the key platinum futures contract in Tokyo rose by its daily limit of Y120 to Y5,555 a gram. But both metals fell back during the afternoon session. Australian stocks sagged as many of the country's biggest miners have large operations in South Africa.

Tokyo led markets higher, helped by broadly encouraging jobless numbers. Vacancies fell to a two-year low and the unemployment rate stayed the same at 3.8 per cent last month.

The Nikkei 225 average closed 3 per cent higher at 13,478.86 and the broader-based Topix index was up 2.8 per cent at 1,328.73

"The Japanese data were a mixed bag with employment holding steady in the middle of the range for the last year," said David Cohen, head of Asian economic forecasting at consultancy Action Economics in Singapore. "Retail sales for the whole year were no great shock as they were up by just one-tenth of a percent. That just highlights Japan's dependence on exports."

Nintendo, the games maker, jumped 5.9 per cent to close at Y49,550. Carmaker Honda Motor (NYSE:HMC) rose 3.8 per cent to Y3,260 after saying US profits may rise on higher sales of fuel-efficient cars. Rival Nissan Motor (NASDAQ:NSANY) was up 1.9 per cent at Y985.

Revived demand for equities wiped out most of the gains Japanese bond prices made on Monday. Comments by the Bank of Japan governor, Toshihiko Fukui, that growth would continue but at a slower pace did not help. The 10-year Japanese government bond dropped 0.6 to 100.301, boosting the yield to 1.465 per cent.

In Hong Kong, the prospect of lower US interest rates helped property developers and banks as borrowing costs in the territory track American moves because of the Hong Kong dollar's peg to the US currency. Investors largely shrugged off comments by Joseph Yam, the head of the Hong Kong Monetary Authority, that the subprime crisis would slow growth in the territory.

The Hang Seng index closed 1 per cent higher at 24,291.80, off the day's highs. HSBC gained 1 per cent to HK$117.60 and Sun Hung Kai Properties jumped 3.9 per cent to HK$159.70.

Mainland Chinese shares managed to claw back a little of Monday's big loss. Shanghai's composite index gained 0.9 per cent to close at 4,457.94 after sliding 7.2 per cent the previous session. The market is still down 15.3 per cent since the start of the year.

Transport shares fell again heavy snow falls continued to cause disruptions ahead of next week's lunar new year holiday, a traditionally heavy travel season. China Eastern Airlines (NYSE:CEA) dropped 2.5 per cent to Rmb15.23 and Daqin Railway slid 5.7 per cent to Rmb21.12.

Australian shares suffered from the uncertainty on commodity markets. Equities were also catching up on the falls elsewhere in the region on Monday, when Sydney markets were closed for a public holiday. The S&P/ASX 200 index closed 2.5 per cent lower at 5,716.50 by mid-afternoon.

BHP Billiton (NYSE:BHP), the world's largest mining company, fell 3 per cent to A$35.70 as difficulties in producing precious metals spread to nonferrous operations as well. BHP's rival and takeover target, Rio Tinto, lost 4.2 per cent to A$113.57.

Asset manager Allco Finance, whose shares slumped 29 per cent last week, was one of the biggest gainers in Sydney. Allco shares surged 25 per cent in the first hour of trading after lenders and executives reached an agreement to stop forced selling of shares to meet margin calls. Allco closed up 6.5 per cent at A$3.62. The shares have halved in value in just over a year.

Among other markets, Singapore turned lower in the afternoon and was off 0.1 per cent in late trading. South Korea ended up 0.7 per cent while Taiwan added 1.2 per cent. Mumbai was up 0.3 per cent in the afternoon, paring gains after the Indian central bank left interest rates on hold despite some expectations of a reduction to mirror the US Fed's cut.

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