Asian Stocks Advance as Fed Cuts Interest Rates to Record Low

By Patrick Rial and Shani Raja

Dec. 17 (Bloomberg) -- Asian stocks rose to a five-week high after the Federal Reserve slashed interest rates to a record low and signaled it will continue to buy assets to bolster the world’s largest economy.

BHP Billiton Ltd., the world’s largest mining company, gained 4.3 percent and Newcrest Mining Ltd., Australia’s No. 1 gold producer, added 3.5 percent in Sydney on optimism lower U.S. borrowing costs will help sustain demand for metals. Mitsubishi UFJ Financial Group Inc. advanced 3 percent in Tokyo, leading gains among banks, as the cost of protecting corporate bonds from default fell.

The MSCI Asia Pacific Index climbed 2.1 percent to 89.26 as of 9:35 a.m. in Tokyo. Four stocks rose for each that dropped. The measure has fallen 45 percent this year, as the global credit crisis triggered by the collapse of the U.S. housing market pushed the world’s largest economies into recession.

“Confidence is starting to return to the financial markets that you’re not going to see any more systemic issues blowing you out of the water,” said Sean Fenton, who manages about $324 million at Tribeca Investment Partners in Sydney. “The recession is well and truly priced in.”

Japan’s Nikkei 225 Stock Average advanced 1.3 percent to 8,674.75 as investors’ bets the central bank will lower interest rates surged. Australia’s S&P/ASX 200 Index gained 2.1 percent to 3,630.30. New Zealand’s NZX 50 Index climbed 0.7 percent.

In New York, the Standard & Poor’s 500 Index rallied 5.1 percent yesterday to the highest level since Nov. 10. The gauge’s advance was the most on a Fed rate-decision day since 1994, according to Bespoke Investment Group LLC.

Hong Kong Interest Rates

The Fed cut its target rate for overnight loans between banks to a range of zero to 0.25 percent, a record low. The central bank also said it will “employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.”

A senior Fed official indicated that the bank will now shift its policy focus to asset purchases as a means of providing liquidity to the financial system.

The Hong Kong Monetary Authority lowered its base rate to 0.5 percent from 1.5 percent following the Fed’s decision. Movements in Hong Kong rates typically track U.S. credit policy because the local currency is pegged to the dollar.

In Japan, investor bets that the central bank will lower interest rates doubled yesterday after the government urged it to boost efforts to bolster the nation’s ailing economy.

Investors saw a 40 percent chance the Bank of Japan will reduce the overnight call rate from 0.3 percent at a policy meeting this week, according to calculations made by JPMorgan Chase & Co., up from 20 percent earlier in the day.

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.