Asia Stocks: Bounce Seen After Fed Move

Source : The Straits Times, Sunday, Aug 19, 2007

HONG KONG/SINGAPORE - BATTERED Asian stock markets are set for a bounce after the Federal Reserve cut its discount rate on Friday to calm anxious investors, triggering a rally in US and European shares.

The Fed cut the rate it charges on loans to commercial banks by half a point, citing the adverse impact of deteriorating market conditions and tighter credit on economic growth.

The surprise move came too late for Asian markets to react, but the region's US-listed stocks tracked Wall Street's broad gains with the Bank of New York's Asian index surging 2.7 per cent.

Among the top gainers were Taiwan's chip maker TSMC , up 6.5 per cent, and India's ICICI Bank which soared almost 13 per cent.

But Asian markets are likely to remain nervous in days ahead after a vicious sell-off over the past week pushed regional markets to multi-month lows with investors and analysts bracing for more trouble that could require further central bank action.

'I don't think we've solved all the credit market problems with this move from the Fed today,' said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.

In a reminder there could be more bad news to come, Sentinel, a cash management firm serving the US futures industry whose decision to freeze client accounts roiled markets last week, filed for bankruptcy protection late on Friday.

Growing fears that a global credit squeeze could choke economic growth have sent jittery investors fleeing from risky trades and into safe-haven assets such as government bonds of developed countries.

The surge in the yen has also fuelled fears that the once trendy carry trade will continue to be unwound. In a carry trade, investors borrow a low interest-rate currency, such as the yen, to buy higher-yielding but riskier assets.

More choppy action ahead

Any sign that global markets were steadying would help Asian stocks regain ground, but there is more choppy action ahead, analysts said.

'There's probably further to go. We're getting to the point now where it's going to be difficult to differentiate trend from volatility. Volatility has returned dramatically,' said Mark Konyn, chief executive for Asia Pacific of Allianz's RCM asset management unit.

'One of the effects of this contagion, and it is contagion of sentiment, is that the selling is sometimes indiscriminate. It's across the board and as a result it's difficult to find pockets of diversification.' MSCI's measure of Asia Pacific stocks excluding Japan lost nearly 10 per cent on the week, its biggest weekly decline since January 1998, when the market tumbled 12.4 per cent. -- REUTERS