Asian Stock Rally!

By JEREMIAH MARQUEZ, AP Business Writer 1 hour, 53 minutes ago

HONG KONG - Japan's stock market soared in early trading Tuesday, leading a second-day rally in Asian stocks after Wall Street staged a dramatic comeback from its worst week ever.

Sparked by global efforts to fix the world's crippled financial system, Tokyo's benchmark Nikkei 225 index jumped 1,079 points, or 13 percent, to 9,355. The Japanese financial markets were playing catch-up because they were closed Monday for a public holiday.

In Australia, the S&P/ASX200 index traded more than 5 percent higher after the government announced plans to inject 10.4 billion Australian dollars ($7.4 billion) to strengthen the country's economy.

Markets in South Korea, Singapore, New Zealand and Taiwan also climbed 5 percent or more.

The advance came after the Dow Jones industrial averages on Monday gained more than 11 percent — its biggest one-day rally since 1933.

Traders reacted with relief moves by the U.S. government to inject capital into major banks and get lending flowing again among companies. That followed signals that European governments were putting up nearly $2 trillion to safeguard their own banks.

"The governments are ensuring that no matter what happens they're not going to allow another major institution to fail," said Nicole Sze, an investment analyst at asset manager Bank Julius Baer & Co. in Singapore. "What's happened in the last 48 years is an extremely positive development. ... You're seeing a reversal of the panic selling, and we think a temporary bottom has been found."

In Europe on Monday, Germany's DAX ended up 518.14 points, or 11.4 percent, at 5,062.45, while France's CAC-40 finished 355.01 points, or 11.2 percent, higher at 3,531.50.

Britain's FTSE 100 gained 324.84 points, or 8.3 percent, to 4,256.90, despite some hefty falls in the banks that have accepted government help. The strong showing follows sharp falls in stock indexes worldwide last week, and as interbank interest rates remain abnormally high.

Despite Monday's sharp share price gains, investors remain skeptical that the stock markets are out of the woods. It's too early to tell if the banking measures outlined Monday will actually work or how the recent carnage in financial markets will play out in the global economy.

"I'm not convinced yet. It's a bit of a waiting game," said David Jones, chief markets strategist at IG Index.

The latest coordinated move emerged before European trading began, when top central banks — including the U.S. Federal Reserve and the European Central Bank — unveiled new measures to thaw frozen credit markets and bolster funding to banks. They joined the Bank of England and the Swiss National Bank in saying they would provide unlimited U.S. dollar funds to financial institutions. The Bank of Japan said it was considering similar measures.

The banks' action came after leaders of the 15 countries using the euro said Sunday they would guarantee new bank debt until the end of 2009, allow governments to help banks by buying preferred shares, and vowed to rescue important failing banks through emergency recapitalization.

The key is whether the flurry of activity can actually ease conditions in the credit markets. Despite the coordinated interest rate reductions announced last Wednesday, and massive liquidity boosts, the rates at which banks lend to each other continued to rise. That means banks were afraid to lend to each other, and raises the chance that they and other businesses won't get the credit they need to operate.


The London interbank offered rate, or Libor, for three-month dollar loans fell 0.07 percent to 4.75 percent, while the similar rate in euros, or Euribor, dipped only 0.063 to 5.318 percent. The rate remains well above the euro zone's benchmark rate of 3.75 percent set by the ECB, meaning the credit freeze is far over. Usually Euribor is much closer to the ECB rate.

"There's been nothing dramatic but there are some modest improvements in rates and spreads," said Neil Mackinnon, chief economist at ECU Group.

Latin America shares have been hammered by the recent global sell-off, but rebounded sharply on Monday. Brazil's Ibovespa stock index rose 14.7 percent to close at 40,829, regaining ground after losing 20 percent of its value last week.

Mexico's IPC index meanwhile gained 11 percent to close at 22,096, while Chile's benchmark IPSA index jumped 12.5 percent to 2,364 and Peru's IGBVL index rose 13.7 percent to 8,668. Exchanges in Argentina and Colombia were closed for a national holiday.
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AP Business Writers Pan Pylas in London and Bradley Brooks in Sao Paulo, Brazil contributed to this article.

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