Asian markets rally after US cut

A trader in Hong Kong

Asian markets picked up in early trading on Wednesday

Asian stocks have rallied after an interest rate cut by the US Federal Reserve helped calm investor anxiety. Share prices rose in early morning trading on Wednesday in Japan, Australia and South Korea.

Japan’s benchmark Nikkei 225 index surged 3.4% in the wake of the surprise cut, having plunged nearly 6% on Tuesday in its worst fall since 9/11.

Australian stocks followed their worst day of trading in 25 years by bouncing back more than 6%.

Global shares had rebounded after the Fed cut its main interest rate to 3.5% from 4.25% on Tuesday in an attempt to pull the world’s biggest economy away from a recession.

The UK’s FTSE 100 index closed 2.9% higher after falling more than 4% earlier. France’s Cac also bounced back but Germany’s Dax closed 0.3% down.

In the US, the Dow Jones and S&P 500 indexes fell, but their declines were less sharp than they had been earlier.

Gaining ground

The rally came after global markets suffered serious losses on Monday, and as investors continued to dump shares in early trading on Tuesday.

The fears about slowing global growth were so pronounced that they spread to other asset classes, hurting commodities such as oil and gold.

But most stock market indexes and commodities quickly gained ground after their earlier losses in response to the Fed’s biggest interest rate cut in more than two decades.

The UK’s benchmark FTSE 100 index of largest shares finished 162 points, or 2.9%, ahead at 5,740.1 and the French Cac 40 index gained 2%, but Germany’s Dax failed to make headway, still down 0.3% at 6,769.47.

In the US, shares on the Dow Jones Industrial Average ended the session 1% lower at 11,971.19, while the broader S&P 500 index also shed 1%.

Caution rules

The recent stock market declines came after many investors were disappointed by US President George W Bush’s proposed $145bn (¬£74bn) emergency stimulus plan to boost the economy.

At the same time, banks were reporting increasing losses stemming from problems in the US housing market, and some of the main bellwether companies were not meeting analysts’ earnings estimates.

Signs of the tougher economic environment have also been evident in the Christmas corporate trading statements and economic data on both sides of the Atlantic.

Many analysts said that while the Fed’s rate cut might help to ease concerns in the short-term, stock markets were set to be volatile in coming weeks.

“Caution still rules the long-term picture,” said Markus Steinbeis of Pioneer Investments.

source: BBC News


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