Ailing world markets fight back

October 7, 2008 12:00 am

, TOKYO, October 7 – Battered world markets shook off some of their recent gloom Tuesday as European stocks rallied and Asian bourses pulled back from the brink on hopes of cuts to global interest rates.

Asian markets took another dive before Australia’s central bank provided a rare dose of positive news, slashing interest rates in a move that sparked hopes policymakers in other countries could follow suit.

European stock markets shot higher at the open after huge falls the previous day, London added 1.5 percent, Paris gained 2.66 percent and Frankfurt rebounded 1.18 percent.

It was another nail-biting day for Asia. Tokyo briefly tumbled five percent, dropping below 10,000 points for the first time in more than four years on fears that government efforts to end the crisis may be too little, too late.

But markets ended well off their lows of the day after the Australian central bank slashed interest rates by a hefty one percentage point, a dramatic move aimed at shielding the economy from the ongoing financial turmoil.

The rate cut, Australia’s biggest since May 1992, surprised markets which had expected a cut of only up to 0.50 percentage points.

Australian shares closed up 1.7 percent while other markets including Seoul, Taipei and Singapore rebounded into positive territory.

"Things are very cheap and there is probably some bargain-hunting," said Macquarie Equities investment advisor Brad Gordon in Wellington where stocks ended down 1.45 percent.

But investors were still extremely nervous, dealers said.

"The market is still panicky," Credit Suisse strategist Satoru Ogasawara said. "Many people are simply dumping shares."

Moscow’s two main stock exchanges said they would stay closed on Tuesday morning while stock markets in the oil-rich Gulf states opened sharply lower.

Traders were looking for any signs that authorities may take coordinated action to try to quell the turmoil, and in particular whether they will cut interest rates to shore up market confidence and global economic activity.

Finance chiefs from the Group of Seven rich nations are scheduled to meet Friday in Washington.

Markets are crying out for action by the G7 to stabilise the markets, said Toshihiko Matsuno, deputy equity general manager at SMBC Friend Securities.

"I think we are seeing the market demanding authorities do something, take some kind of coordinated policy action," Matsuno said.

The yen continued to outshine its rivals on the currency markets as investors sought shelter from the storm raging on global markets.

"Investors are panicking. They don’t know what’s going to happen next," said Ryohei Muramatsu, manager of Commerzbank’s Group Treasury Asia in Tokyo.

The plunges on global markets reflected a lack of confidence in the recent efforts by the US and European authorities to try to ease fears about credit flows drying up and to stabilise their banking systems, he said.

Market players "doubt whether the rescue measures by governments are going to work. Even if they do, they are coming too late. Action should have been taken a lot sooner," said Muramatsu.

Crude oil prices rebounded in Asia but remained below 90 dollars a barrel amid expectations that the financial turmoil will reduce demand for energy.

Overnight on Wall Street, the Dow Jones fell as much as 800 points during the session, slipping below the key psychological level of 10,000 for the first time since 2004.

But the market pulled back from the edge of the abyss in a highly volatile session, closing down 369.35 points, or 3.58 percent, at 9,955.50.

"We are seeing flight to quality from riskier assets. Some people might be picking up bargains, but there is no telling how long they will hold onto the shares they bought at low prices," said Credit Suisse’s Ogasawara.

"When you have financial worries like we do now, you cannot predict what will happen next. Although the magnitude of the market’s panic has eased, volatility is still high," he said.


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