Asian stocks rebound on heels of Wall Street

December 6, 2008
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, TOKYO, December  3 – Asian stocks clawed back some ground in early trade Wednesday after Wall Street rebounded overnight on hopes for a US government rescue for ailing Detroit automakers.

But the recovery from heavy losses the previous day was relatively modest and dealers said it was driven largely by technical factors, with sentiment still cautious following a recent flood of grim economic data.

Stocks rose 4.0 percent in Shanghai, 1.8 percent in Tokyo and 0.2 percent in Sydney, after substantial falls Tuesday. The Hong Kong market was up 1.4 percent at the end of morning trade.

"The market continues to be influenced by US stocks, reversing recent losses slightly after the Big Three put forward their revamp plans," said Hideaki Higashi, a strategist at SMBC Friend Securities.

Wall Street turned up Tuesday as the Big Three Detroit automakers pressed Congress for billions of dollars in emergency loans to avert a potentially catastrophic collapse.

The Dow Jones Industrial Average rallied 270.00 points or 3.31 percent, clawing back from a 679-point loss the previous day.

But Higashi said the automakers would still face a bumpy road to clear negotiations with Congress before they get a bailout.

"The rescue plan could be diluted from what they want," he warned.

"There are calls for the management to take responsibility and protect payrolls in the auto sector, which is considered the soul of America, unlike financial companies," he said.

Wall Street was also boosted overnight by General Electric\’s better-than-expected business update.

European investors drew encouragement from news that finance ministers from all 27 European Union nations endorsed plans for a stimulus package totalling 200 billion euros (260 billion dollars), equivalent to 1.5 percent of EU gross domestic product.

"Despite a lack of consensus amongst national governments, the European Commission\’s bailout package is giving hope to equity investors," said Kim Forkes at Economy.com.

In London, the FTSE 100 closed 1.41 percent higher Tuesday, while Paris\’s CAC 40 added 2.35 percent and Frankfurt\’s DAX jumped 3.12 percent.

Investors are looking to central banks this week for the latest round of action to combat the worst financial crisis since the 1930s which is threatening to plunge the global economy into recession.

The European Central Bank and the Bank of England are both widely expected to slash interest rates on Thursday.

Economic news remained gloomy. Australia\’s economy grew just 0.1 percent in the third quarter — its slowest pace in eight years, official figures showed.

"It is difficult to see the rally in equities being sustained and it will not take much in the way of more bad economic news to bring a dose of reality back," warned analysts at the Calyon investment bank.

There were also signs that the Chinese economy is slowing. The yuan fell by its maximum daily trading limit for a second consecutive day Tuesday.

The sudden drop in the value of the Chinese currency may signal a policy shift to prop up exports during the financial crisis, analysts said.

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