TOKYO, October 30 – An interest rate cut by the US Federal Reserve and its announcement of multi-billion-dollar currency swaps sent Asian stocks soaring Thursday as signs emerged of a thaw in world credit markets.
The US central bank Wednesday sliced its key rate by 50 basis points to 1.0 percent — the second cut this month — to stimulate the world\’s biggest economy amid the worst global economic crisis since the Great Depression.
Asian shares rebounded sharply, extending gains made on Wednesday, in the wake of the cut and the Fed\’s currency swap deal with central banks in Brazil, Mexico, South Korea and Singapore to help them tackle the credit squeeze.
Japan\’s Nikkei stock index closed up 9.96 percent, extending its rebound into a third day, while stocks in South Korea leapt 11.95 percent.
Hong Kong share prices rocketed 10.1 percent by the end of the morning session and Singapore prices were up nearly seven percent by midday.
Shanghai was up 1.16 percent at midday after China\’s central bank also cut key interest rates on Wednesday in a bid to spur economic growth, the third such move in six weeks.
Japanese exporters meanwhile cheered a weaker local currency, with the dollar changing hands at 98.30 yen in Tokyo afternoon trade, up from 97.61 yen in New York late Wednesday.
In another sign of the global crisis easing, the euro went above 1.30 dollars for the first time since October 22. The single European currency rose to 1.3215 dollars from 1.2938 dollars in New York.
But analysts said markets could struggle to sustain the recovery — after weeks of sharp falls — given fears of a global recession.
"We believe the recent rise in stock prices is still only in the nature of an autonomous rebound," Shinichi Ichikawa, chief strategist at Credit Suisse, told Dow Jones Newswires.
The rebounds came as Japan\’s Prime Minister Taro Aso was set Thursday to unveil a new multi-billion-dollar package to help Asia\’s largest economy weather the global economic crisis as he puts off high-risk elections.
South Korea\’s parliament approved a plan to extend state guarantees worth up to 100 billion dollars on foreign borrowing by local banks, in a move intended to stabilise turbulent financial markets.
Analysts said an unusually bleak assessment of the economy from the US Federal Reserve suggested there could be further rate cuts as the central bank battles to revive economic growth and stave off the threat of deflation.
The latest move followed an emergency half-point cut on October 8 coordinated with other central banks to help fight a worldwide credit crunch.
"The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," said the Federal Open Market Committee headed by chairman Ben Bernanke after the unanimous decision.
Gross domestic product figures for the July-September quarter are due to be released later Thursday as the next major pointer to the health of the US economy.
China on Wednesday chopped its benchmark one-year deposit rate by 27 basis points to 3.60 in a bid to spur economic growth.
Taiwan\’s central bank followed suit on Thursday, lopping 25 basis points off its key lending rate, while Hong Kong cut its rate by 50 basis points to 1.5 percent.
Japan\’s central bank is also reportedly considering reducing its super-low interest rates to just 0.25 percent this week.
But the concern is that the central bank moves will come too late to prevent a severe worldwide economic downturn.
"There is little to suggest that cuts will be able to moderate the pace of global economic deterioration," said analysts at UBS.
The International Monetary Fund created a new short-term liquidity facility for countries battered by the crisis.
The IMF executive board said the emergency tool was "to establish quick-disbursing financing for countries with strong economic policies that are facing temporary liquidity problems in the global capital markets."
"Exceptional times call for an exceptional response," IMF head Dominique Strauss-Kahn said.
The US Fed announced its own temporary "swap" facilities with central banks in Brazil, Mexico, South Korea and Singapore.
Each would be provided up to 30 billion dollars in liquidity, it said, "in response to the heightened stress associated with the global financial turmoil, which has broadened to emerging market economies."
The Asian rebound came despite modest losses overnight on Wall Street, where investors took profits a day after the Dow Jones soared almost 11 percent.