Asian Stocks Snap Five-Day Plunge After Global Rate Reductions

By Kyung Bok Cho and Chua Kong Ho
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Oct. 9 (Bloomberg) -- Asian stocks gained after four of the region's central banks cut interest rates, joining a global effort to limit the economic impact of the worst financial crisis since the Great Depression. U.S. futures rose.

Industrial & Commercial Bank of China Ltd. surged 6.1 percent and LG Electronics Inc. climbed 4.9 percent after China, South Korea, Hong Kong and Taiwan lowered borrowing costs, following coordinated rate cuts by the U.S. Federal Reserve and five other central banks. Newcrest Mining Ltd. and Lihir Gold Ltd., Australia's largest publicly traded gold-mining companies, jumped more than 10 percent after the price of the metal climbed.

The MSCI Asia Pacific Index added 1 percent to 92.34 as of 2:37 p.m. in Tokyo, paring gains of 2.8 percent after the rate cuts failed to lower money market rates. The advance ended a five-day, 16 percent drop. S&P 500 index futures rose 0.6 percent.

``The rate cuts are clearly helpful,'' said Howard Wang, who oversees $10 billion at JF Asset Management Ltd. in Hong Kong. ``One should begin investing more, but I would certainly not characterize the environment as safe.''

MSCI's Asian index fell 7.4 percent yesterday, the most since April 1990, on concern the credit crisis will topple more banks and slowing growth will cut demand for exports.

Japan's Topix Index rose 0.9 percent to 9,06.95, led by Nintendo Co. and Mitsubishi Corp., after shares declined to their cheapest since at least 1989. Hong Kong's Hang Seng Index jumped 2.7 percent.

Indonesian stocks are suspended from trading following yesterday's 10 percent drop. Australia's S&P/ASX 200 Index fell 1.5 percent, led by Commonwealth Bank of Australia after it sold shares at a discount. The U.S. Standard & Poor's 500 Index lost 1.1 percent to 984.94 overnight, its lowest close since August 2003.

Rate Cuts

China reduced its interest rate by 0.27 percentage point late yesterday, within minutes of half-point cuts by the Federal Reserve, the European Central Bank, and four other central banks.

South Korea and Taiwan lowered their rates by a quarter of a percentage point today and Hong Kong cut its benchmark to 2 percent. The Bank of Japan, which kept its policy rate unchanged this week, pumped $20 billion into the financial system.

ICBC, China's largest bank, gained 6.1 percent to HK$4.03 in Hong Kong. LG Electronics, Asia's second-largest mobile-phone maker, rose 5.3 percent to 110,000 won in Seoul. Taiwan Semiconductor Manufacturing Co., the world's largest custom-chip maker, added 2.8 percent to NT$47.55.

Corporate Bond Risk

The risk of companies and governments in the Asia-Pacific region defaulting on their debt fell. The Markit iTraxx Japan index was 4 basis points lower and the Markit iTraxx Australia index declined 17 basis points. The indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality.

``A lot of investors welcome this move to really restore confidence in the market,'' said Pankaj Kumar, who manages $460 million as chief investment officer at Kurnia Insurans Bhd. in Petaling Jaya near Kuala Lumpur.

Prior to the rate cuts, stock market declines wiped more than $5 trillion off stocks globally this month.

Mitsubishi UFJ Financial Group Inc., Japan's biggest bank, climbed 6.6 percent to 813 yen. Woori Finance Holdings Co., which controls the second-largest bank in South Korea, advanced 5.7 percent to 11,100 won. Cathay Financial Holding Co., Taiwan's biggest financial-services company by market value, rose 4.3 percent to NT$38.

Financial stocks also gained after Treasury Secretary Henry Paulson signaled the government may invest in banks.

``It is the policy of the federal government to use all resources at its disposal to make our financial system stronger,'' Paulson said. ``We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.''

Gold Price

Newcrest, owner of Australia's biggest gold mine, jumped 15 percent to A$26.69, the most since Sept. 27, 1999. Lihir climbed 12 percent to A$2.65. Sino Gold Mining Ltd., which started production last year at China's second-largest gold mine, advanced 13 percent to HK$26 in Hong Kong.

Gold jumped 2.8 percent to $906.50 an ounce in New York yesterday as volatile stock markets prompted investors to seek a haven in precious metals.

Nintendo, Japan's second-largest video-game maker, rallied 13 percent to 35,000 yen, the most since Sept. 19, 2001. Mitsubishi, Japan's largest trading house, gained 9.8 percent to 1,743 yen after its share price fell below the book value of its assets.

``We're making some changes to our portfolio to get into some attractive shares,'' said Hideyuki Ookoshi, who helps oversee about $365 million at Chiba-Gin Asset Management Co. in Tokyo. ``There's some buying of blue-chip companies that from a long-term perspective are solid bargains, even though its unclear if we've hit rock bottom.''

Valad, Aeon

Commonwealth Bank, Australia's biggest provider of mortgages, dropped 6.6 percent to A$42.17 after selling A$2 billion ($1.3 billion) of stock to raise funds for its acquisition of HBOS Plc's Australian units. The bank sold new shares at A$38 apiece, a 16 percent discount to its closing price on Oct. 7, before trading suspended.

Valad Property Group, an Australian property investment and management company, plunged a record 54 percent to 12 Australian cents. The company said receivers were appointed to its customer Petrac, which owes Valad A$31.1 million.

Aeon Co., Japan's second-largest retailer, fell 5.6 percent to 897 yen, the lowest since June 20, 2000. The company reported an 8.6 percent drop in second-quarter operating profit as costs rose and consumer demand slumped. Larger rival Seven & I Holdings Co. lost 6.3 percent to 2,465 yen.

To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net; Chua Kong Ho in Shanghai at kchua6@bloomberg.net