Asian stocks extend recovery as global gloom eases

TOKYO (AFP) - Asian stock markets extended a recovery in early trade on Tuesday as confidence gradually returns after the recent slump, despite lingering fears of fresh trouble in credit markets.

Dealers said worries that US mortgage woes could spark a full-blown credit crisis have receded since the Federal Reserve stepped up its efforts to calm the turmoil on Friday, slashing the lending rate it charges commercial banks.

Wall Street stocks closed mixed in choppy trade Monday, sapping some of the investor enthusiasm from rallies in Europe and Asia.

Markets are likely to remain volatile with the potential for further losses until the full extent of the problems in US subprime mortgages to borrowers with poor credit histories is known, analysts said.

For now, however, investors were more than happy to recoup some of their recent losses.

Tokyo gained 1.50 percent in morning trade, while Hong Kong jumped 2.9 percent in opening deals, after soaring 5.9 percent on Monday -- the market's single biggest one-day points gain since 1998.

"Although fears about the health of the US financial system receded somewhat in the wake of the Fed's monetary action, worries about subprime mortgage problems will persist, making the US stock market volatile too," said Shinko Securities strategist Tsuyoshi Segawa.

"But once the volatility eases, the market may start focusing on economic fundamentals," he said.

Philippine share prices rocketed up nine percent in early trade after reopening from a holiday Monday as investors jumped back into the market, anxious not to miss a recovery.

Shanghai added 1.06 percent on follow-through interest after the benchmark index hit a record closing high the previous day, while Singapore put on one percent, Seoul firmed 1.7 percent and Sydney gained 0.4 percent.

Until late Friday, world stock markets had been tumbling since August 9, as concerns mounted over the economic fallout from the weak subprime home loan market in the United States.

The US Federal Reserve on Friday cut its discount rate it charges commercial banks by a half-point to 5.75 percent, raising expectations it may also lower its key federal funds rate, the overnight rate banks charge each other.

Japanese Finance Minister Koji Omi said there were signs that financial market conditions were improving.

"We still cannot say the situation is completely resolved, but it has been stabilising for a while," he told reporters.

Although markets have clawed back some of their recent hefty losses, analysts warned not to expect a return to the heady gains of recent years.

"The Fed move eases pain but does not remove it. We believe the investment landscape enjoyed between 2003 and July 2007 will be not be repeated going forward," Citigroup's Asia strategist Markus Rosgen wrote in a note to clients.

In Tokyo much of the buying was focused on export-oriented companies in the wake of the slightly softer yen.

Japanese exporter shares took a beating last week after the yen shot higher as investors unwound risky "carry trades" that profit from the large gap between the interest rates of Japan and other countries.

The yen has since shown signs of stabilising, trading at 115.10 to the dollar in early Tokyo deals, against 114.86 late Monday.

Investors were also cautious ahead of the Bank of Japan's two-day policy board meeting which begins on Wednesday.

Although the central bank is widely expected to leave its benchmark interest rate unchanged at 0.5 percent on Thursday, some analysts warn that such an outcome is not a foregone conclusion.