Asian stocks rally after Fed cheers global markets

TOKYO (AFP) - 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.

But markets remained nervous about possible further bad news on the fallout from rising delinquencies in US sub-prime mortgages to risky borrowers.

Tokyo led the way with a gain of 3.69 percent in morning deals, recouping some of the massive 5.42 percent plunge seen on Friday when the market had suffered its biggest one-day point drop since April 2000.

In addition to the strong rally seen on Friday on US and European stock markets, the yen's retreat soothed investor fears about exporter earnings, dealers said.

The dollar traded at 114.36 yen in Tokyo morning trade, up from the mid-112 yen range when the Tokyo stock market closed on Friday.

But analysts warned stocks could struggle to sustain the rebound.

"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.

Across the Asia Pacific investors chased shares higher, eager not to miss a recovery after recent heavy losses.

Hong Kong opened 3.7 percent higher, Seoul gained more than 4.0 percent in early deals, Sydney jumped 3.4 percent, Singapore rallied 4.5 percent, Shanghai gained 2.32 percent and Kuala Lumpur put on 2.9 percent.

"A rebound will be the reward to those who have not been part of last week's panicky selling," said Alvin Teng, an assistant vice president with SinoPac Securities in Taipei where shares were up 4.17 percent in early deals.

"The crisis facing credit markets boils down to a lack of confidence," he said. "And that is precisely what the Fed wants to achieve, restoring confidence by making a largely symbolic move."

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.

Central banks from Sydney to Washington have together pumped billions of dollars into the global financial system in recent days amid signs that private banks and firms are having trouble raising funds and rolling over debt.

Japanese investors are now waiting nervously for an interest rate decision from the Bank of Japan 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.