Markets hope for post election rally

November 4, 2008

, TOKYO, November 4 – Investors pinned their hopes of a stock market recovery on interest rate cuts and action by the next US president to stem the financial crisis as the White House race neared the finishing line Tuesday.

Traders were betting the winner of Tuesday\’s vote would take extra steps to tackle a looming recession in the world\’s largest economy, with opinion polls giving Democrat Barack Obama a wide lead over Republican rival John McCain.

"Investors have high expectations" for the next president to take action on the economy, said Sumitomo Trust Bank strategist Saburo Matsumoto.

Central bankers meanwhile continued their efforts to restore stability to world markets and stop the global economy slipping into a long downturn.

The Reserve Bank of Australia (RBA) slashed its key lending rate by a bigger-than-expected 75 basis points. The European Central Bank (ECB) and the Bank of England are expected to follow suit later in the week.

The RBA, which has now cut rates by 2.0 percentage points since September, said the aggressive reduction was warranted given the chilly economic climate.

"International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well," RBA governor Glenn Stevens said.

Plunging auto sales in the United States and Japan provided fresh evidence of the fallout of the credit crunch, while the world\’s biggest reinsurer Swiss Re posted a quarterly loss of 258 million dollars due to the market turmoil.

Asian markets saw mixed fortunes ahead of the US elections. Japan\’s Nikkei stock index closed up 6.27 percent, lifted by a weaker yen and reports of a possible takeover of struggling electronics maker Sanyo by rival Panasonic.

Seoul ended 2.2 percent higher, a day after the South Korean government announced a major package to stimulate the economy.

But several markets in the region lost ground, including Sydney, which ended down 0.2 percent but off an early low as the rate cut lent some support.

Singapore was down one percent in early afternoon.

Analysts said growing worries about the health of the global economy could put the brakes on the recent rally in world share prices.

"We believe that the recovery has gotten ahead of itself," Dariusz Kowalczyk, chief strategist at CFC Seymour in Hong Kong, wrote in a note.

"We expect another major episode of risk aversion to take hold of markets in the near future, with the potential for commodities and stocks to hit new lows for the year," he warned.

Meanwhile South Korea, Japan and China are to hold talks later this month on expanding multi-billion-dollar currency swap deals to bolster defences against the global financial crisis, a senior Seoul official said Tuesday.

The dollar fell slightly against the yen but rose against the euro as investors focused on the US election.

The greenback was at 98.67 yen in Tokyo afternoon trade, down from 99.13 in New York late Monday. The euro dropped to 1.2585 dollars from 1.2635.

Data on the US manufacturing sector showed activity fell for the third month in a row in October. A business survey also painted a gloomy snapshot of the corporate sector. Key US employment data due on Friday is expected to show that the US economy lost a further 200,000 jobs in October.

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