Global markets rally after US Fed's rate cut sparks Wall Street


  • Business
  • Wednesday, 19 Sep 2007

MYT 5:59:29 PM

KUALA LUMPUR: Global stock markets rallied Wednesday in the wake of Wall Street's overnight surge spurred by the U.S. Federal Reserve's larger-than-expected interest rate cut. 

In Malaysia the benchmark Composite Index (CI) jumped 19.83 points to close at 1,297.16. 

Over one billion shares were traded.  

Gainers led losers 600 to 255 with 250 counters unchanged. 

At midday the CI jumped 19.63 points to 1,296.96. 

Top gainers were KL Kepong (+90sen), British American Tobacco (+50sen) and DiGi.com (+50sen) 

In the morning the CI jumped 14.52 points to 1,291.85 amid fresh buying interest, as investors cheered the larger-than-expected cut in US interest rates.

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Japan's benchmark Nikkei 225 stock index soared 579.74 points, or 3.7 percent, to close at 16,381.54 points, marking its biggest point gain in more than five years.  

"They did the right thing,'' Joseph Han, a strategist at Daewoo Securities Co. in Seoul, said of the Fed's aggressive cut.  

Many analysts predicted a quarter-point reduction in the fed funds rate. 

Kaoru Yosano, Japan's chief government spokesman, also welcomed the Fed's decision. 

"They have reacted very quickly to the realities,'' he told reporters. 

Stock markets in South Korea, India, Australia and Singapore also advanced. 

In Wednesday morning trading in Europe, the U.K. benchmark FTSE 100 rose 2.3 percent to 6,426.10.  

Germany's Dax gained 1.7 percent to 7,707.35 and France's CAC-40 climbed 2.3 percent to 5,677.12. 

In New York Tuesday, the Dow Jones industrial average surged 335.97 points, or 2.51 percent, to 13,739.39 - its biggest one-day point jump in nearly five years. 

Asian Development Bank President Haruhiko Kuroda said the U.S. rate cut will benefit Asia's emerging economies. 

"It will definitely sustain the strong economic growth in the U.S., which is beneficial to emerging economies in Asia,'' he said in Manila at a news conference at a forum sponsored by the World Trade Organization. 

After the Fed's move, the Hong Kong Monetary Authority cut its benchmark base interest rate half a percentage point to 6.25 percent.  

Hong Kong's currency is pegged to the U.S. dollar, and the HKMA usually follows in lockstep any U.S. interest rate adjustments. 

Later Wednesday, the Bank of Japan decided to leave its key interest rate unchanged at 0.5 percent, as widely expected. 

The world's central banks like to show they are working together to maintain global stability, and the Bank of Japan would find it hard to raise rates at a time the U.S. central bank is cutting them. 

Also, there are persistent signs of deflation in Japan's economy. 

And last week the government said the economy contracted in the April-June quarter at an annual rate of 1.2 percent, reversing its initial estimate for a 0.5 percent growth. 

Oil prices rose as well Wednesday as the rate cut lifted expectations growth will accelerate and increase demand for already tight crude and gasoline supplies. 

Light, sweet crude for October delivery added 66 cents to US$82.17 a barrel in Asian electronic trading on the New York Mercantile Exchange.  

Overnight oil futures hit an all-time high of $82.38 a barrel after closing the New York floor session at US$81.51. 

But higher oil prices could spur inflation just as the Fed is cutting rates, warned Jose Vistan, research head at AB Capital Securities in Manila. 

"The Fed decision could backfire because we are in the midst of rising commodity prices, particularly energy, oil prices rising to record levels,'' he said. 

For now, investors are relieved that the Fed acted to ease pressure in credit markets. 

The Korea Composite Stock Price Index rose 64.04 points, or 3.5 percent, to close at 1,902.65, its highest level since Aug. 9.  

In India, the benchmark Sensex index of the Bombay Stock Exchange broke through the 16,000 mark for the first time. 

Philippine shares surged Wednesday, boosted by the U.S. Federal Reserve's decision to aggressively cut interest rates and the government's August budget surplus. 

The 30-company Philippine Stock Exchange Index rose 73.23 points, or 2.2 percent, to 3,362.98.  

Gainers outnumbered losers 96 to 23, with 40 stocks ending unchanged. 

"We ended off highs after posting strong gains early in the session. This suggests investors have some concerns in mind,'' said Accord Capital Equities analyst Lawrence de Leon. 

Chinese stocks, however, fell Wednesday, dragged down by the selling of heavyweight banks and defying a rally in other Asian markets spurred by a bigger-than-expected interest rate cut by the U.S. Federal Reserve. 

The benchmark Shanghai Composite Index settled 29.94 points, or 0.6 percent, lower at 5,395.27 after recovering from early losses that had it down as much as 1.6 percent.  

The Shenzhen Composite Index of China's smaller, second market fell 1.3 percent to 1,489.83. 

China's financial markets tend to move independently of the rest of the world because foreigners are barred from investing in many stocks and its markets are largely isolated from international capital flows. - AP 

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