Asian Stocks Gain on Bank Stakes Plan; Treasuries, Yen Decline

By Chua Kong Ho and Chan Tien Hin

Oct. 14 (Bloomberg) -- Asian stocks surged, driving Japan's Nikkei 225 Stock Average to its biggest gain on record, as U.S. and European governments agreed to buy stakes in banks to avert a collapse in financial markets. Treasuries and the yen fell.

The Nikkei jumped 14.2 percent, rebounding from the worst week in its 59-year history, as people briefed on the plan said the U.S. government will invest in nine of the nation's biggest banks. Sony Corp., Toyota Motor Corp. and Mitsubishi UFJ Financial Group Inc. climbed more than 14 percent. National Australia Bank Ltd. added 7.3 percent after the government announced an economic stimulus package. Fortescue Metals Group Ltd. rose 55 percent as commodity prices rebounded.

Governments are ``tackling the root of the problem,'' said Christopher Wong, who helps manage about $25 billion in assets as investment manager at Aberdeen Asset Management Asia Ltd. in Singapore. ``They're putting confidence back into the market by not just adding liquidity but adding strength to the banks that serve Main Street.''

The MSCI Asia Pacific Index rose 9.5 percent to 97.09 as of 3:31 p.m. in Tokyo, poised for its biggest advance since 1998. About half of the measure's 990 members gained by 9 percent or more. The index has dropped 38 percent in 2008 as concern that frozen credit markets will trigger a recession erased about $28 trillion in value from global stock markets.

The Nikkei added 1,171.14 to 9,447.57. Japan's markets were shut for a holiday yesterday, when the MSCI World Index jumped 9.5 percent on speculation state investments in banks will drive down money market rates. Australia's S&P/ASX 200 added 3.7 percent, led by Babcock & Brown Ltd. and Rio Tinto Ltd. Hong Kong's Hang Seng Index rose 4.1 percent, bringing its two-day advance to 15 percent, as Cnooc Ltd. climbed.

Citigroup, Goldman Sachs

Standard & Poor's 500 Index futures gained 2.2 percent. The S&P rebounded yesterday from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939.

The Bush administration will invest about $125 billion in nine banks including Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley, said the people. France, Germany, Spain, the Netherlands and Austria have committed $1.8 trillion to guarantee bank loans and take stakes in lenders.

The yen fell 0.4 percent to 102.46 per dollar, on course for its four-day drop since July.

Money-market rates declined. Singapore's three-month dollar loan rate dropped 13 basis points to 4.66 percent while Hong Kong's local dollar rate lost 2 basis points to 4.42 percent. The Libor-OIS spread, a gauge of cash scarcity, narrowed to 3.54 percentage points from 3.66 percentage points last week.

`More Time Needed'

``The U.S. and Europe now seem to be promising unlimited support to remove the deep-rooted disbelief in the financial system,'' said Yoo Byung Ok, who oversees the equivalent of $3 billion at Mirae Asset Investments Co. in Seoul. ``The key issue here is whether these market gains can be sustained or not. I believe more time is needed to dispel worries about the ripple effect on global economies.''

Sony, the world's second-largest consumer electronics maker, gained 17 percent to 2,785 yen, the most since at least 1974. Toyota, Japan's largest automaker, jumped 16 percent to 3,720 yen and Honda Motor Co. gained 18 percent to 2,485 yen.

Mitsubishi UFJ gained 14 percent to 810 yen, the most since October 2003. The bank, Japan's biggest, won an additional $300 million in annual dividends for its $9 billion investment in Morgan Stanley after shares of the U.S. securities firm dropped.

National Australia Bank, the country's largest, jumped 7.3 percent to A$24.03. Prime Minister Kevin Rudd said his administration will spend A$10.4 billion ($7.3 billion) to boost the economy.

Commodities Rebound

Copper headed for the biggest two-day gain since at least 1986 and crude oil rose, leading an advance in commodities, as the bank injections reduced investor concerns the credit crunch will drive the global economy into a recession.

The Reuters/Jeffries CRB Index of 19 raw materials from coffee to silver gained 3 percent yesterday, after plunging 20 percent in the past two weeks. Copper for delivery in three months on the London Metal Exchange rose as much as 7.5 percent, bringing gains in the past two days to 13 percent, the most since at least 1986. Oil added 2.4 percent to $83.10 a barrel.

Fortescue Metals, Australia's third-largest iron ore producer, soared 55 percent to A$4.37, paring its loss this year to 42 percent. Rio Tinto, the world's third-largest mining company, gained 4.3 percent to A$82.80. Inpex Corp., Japan's biggest oil explorer, surged 14 percent to 746,000 yen. Cnooc, China's largest offshore oil producer, rose 15 percent to HK$7.27.

Yen, Euro

The yen weakened against the Australian and New Zealand dollars as the U.S. Treasury plan to acquire bank stakes encouraged investors to add to holdings of high-yielding assets funded in the Japanese currency.

Against the Australian dollar, the yen plunged 7 percent to 72.61 from 67.57 late yesterday in Asia. Japan's currency fell 4.7 percent versus the New Zealand dollar to 63.83. South Korea's won climbed 4.1 percent to 11.67614 versus the yen.

The euro and the pound rose against the dollar after European countries committed $1.8 trillion to guarantee bank loans. The euro rose to $1.3633 from $1.3581. The pound advanced to $1.7441 from $1.7341.

``Policy makers are gradually restoring confidence in banks and credit markets,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``This promotes risk-taking activity that is likely to weaken the yen.''

`Going North'

Treasuries fell the most in two weeks. Two-year note yields rose 24 basis points to 1.89 percent as of 5:32 a.m. in London, according to BGCantor Market Data.

``The massive flight-to-quality rally that Treasuries have enjoyed is getting undone,'' said Rob da Silva, managing director of Asia-Pacific fixed income at Principal Global Investors in Sydney. ``Yields are probably going north.''

The cost of protecting Japanese and Australian corporate bonds from default declined. The Markit iTraxx Japan index of credit-default swaps fell 45 basis points to 1.80 percentage points, according to Morgan Stanley. Credit-default swaps, contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements.

To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net