TOKYO - Asian stock markets roared back on Monday as investors jumped on board a global rally sparked by the US central bank's boldest move yet to try to ease credit fears. Across the region shares shot higher on hopes that the worst of the recent market rout might be over after the Federal Reserve cut the lending rate it charges commercial banks in an effort to ward off a credit crunch.
Tokyo closed up 3.0 percent with its biggest single-day points rise since June 2006, recouping more than half of Friday's 5.42 percent plunge. Shanghai leapt 5.33 percent to a record closing high.
But markets remained nervous about possible further bad news on the fallout from rising delinquencies in US sub-prime mortgages to risky borrowers, with some analysts warning there could be more losses ahead.
"What happened in the markets last week was of cataclysmic proportions," said Mark Cutis, chief investment officer at Japan's Shinsei Bank.
He said that, although Japanese equities looked cheap, last week's sell-off was only "a prelude to what's going to happen."
"We're expecting to see a much more vicious sell-off in October," he added, predicting that the Fed would probably cut its main interest rate in response.
Investors, however, appeared optimistic, chasing shares higher across Asia,
eager not to miss a recovery after recent heavy losses.
Seoul closed up 5.7 percent and Sydney jumped 4.6 percent, while Hong Kong was 3.6 percent higher in late trade. Singapore rallied 5.0 percent and Mumbai firmed 2.6 percent.
"While the US credit market crisis may not disappear overnight, the Fed's decision ... has demonstrated their will to act and help reduce the uncertainty and volatility in the event that credit markets deteriorate further," DBS Vickers Securities of Singapore wrote in a note to clients.
"This should calm equity markets and end the indiscriminate selling," it said.
Tokyo also gained a boost from the yen's retreat, which soothed investor fears about exporter earnings, dealers said.
The dollar traded at 114.67 yen in Tokyo morning trade, up from the mid-112 yen range when the Tokyo stock market closed on Friday.
Despite the rebound, analysts warned stocks could struggle to sustain their upward momentum.
"Share prices are likely to be slow to resume their upward trend," said Ryuta Otsuka, a strategist at Toyo Securities.
"There are things investors need to assess carefully, such as the prospects for the US economy and the impact on Japanese companies' earnings of the credit market problems," he said.
Elsewhere in the region, Jakarta jumped by more than 6.0 percent in late deals, Bangkok rose 3.2 percent, Kuala Lumpur gained 3.5 percent and Wellington closed up 2.26 percent. Manila was shut for a national holiday.
US and European stocks soared Friday after the US Federal Reserve slashed the discount rate to try to calm the recent storm on world financial markets sparked by fears of a credit crunch from the sub-prime mortgage problems.
The central bank cut the rate it charges commercial banks to 5.75 percent, saying that it wanted to restore order in financial markets that were hit by "increased uncertainty."
The move raised expectations that the Fed may also lower its key federal funds rate -- the overnight rate banks charge each other -- which has been left unchanged at 5.25 percent since June 2006.
Japan's central bank said Monday that it would inject a further 1.0 trillion yen (8.7 billion dollars) into the banking system as part of ongoing efforts to restore calm to financial markets.
Japanese investors are now waiting nervously for an interest rate decision from the bank on Thursday, although expectations of a rate rise have faded following recent market turmoil.
"The market widely expects that the Bank of Japan will not raise interest rate this week. It will be a surprise if the central bank raises rates and it could weigh down on share prices," said Otsuka at Toyo Securities. - AFP/ac/ir
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