TOKYO : Asian stocks surged while oil prices hit a record high Wednesday after the Federal Reserve slashed interest rates by a half point to shield the US economy from housing and credit market woes. The deep rate cut sparked an exuberant rally on Wall Street where shares closed sharply higher Tuesday on hopes that the first cut in the Fed's benchmark rate in four years would ease tight credit and a housing slump.
Asian markets followed suit in early trade with major indices surging by as much as two to three percent as investors scrambled to jump onboard a global rally following the Fed's hefty dose of monetary medicine.
"Equity markets in Asia reacted positively to the Fed's message," said Fumiyuki Nakanishi, analyst at SMBC Friend Securities in Tokyo where the benchmark Nikkei-225 soared 3.36 percent by lunch.
"The party will continue around the world at least for today but it won't last forever," he added.
Hong Kong share prices jumped 3.8 percent at the open, smashing through the 25,000-point mark for the first time after the US rate cut.
Singapore rose 3.3 percent in early deals, Seoul jumped 2.9 percent, Sydney added 2.2 percent, Manila rose 2.7 percent, Kuala Lumpur gained 1.1 percent, Taipei firmed 1.1 percent, and Jakarta advanced 2.4 percent.
Shanghai slipped 0.37 percent in what dealers described as a technical correction.
Although many investors had been hoping for a half-point cut, there had been uncertainty about how the Fed would respond to recent credit market turmoil under chairman Ben Bernanke who took the helm of the central bank last year.
The Fed said its move "is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time."
While stocks reacted positively to the move, there was caution about whether it would resolve the credit market problems caused by rising defaults in the sub-prime mortgages to risky borrowers in the United States.
"The fundamental problems with the sub-prime loans and fears of credit crunch have yet to disappear," said Nakanishi.
"Equity markets in Asia are likely to continue to be vulnerable to moves on Wall Street and policy shifts by US authorities," he added.
Markets are now speculating about the chances of further US rate cuts.
"The Fed's rate cut will pacify credit tightening worries but the fundamental issue of the sub-prime prime trouble will persist. So the Fed is expected to continue lowering interest rates," said Toshihiko Matsuno, senior strategist at SMBC Friend Securities. - AFP/ch
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