TOKYO (AFP) - Asian stock markets rose sharply in early trade on Thursday, chasing Wall Street higher as merger activity and hopes of a US interest rate cut injected fresh momentum into a global rally, dealers said.
A positive lead from China also galvanised buying interest after Shanghai shares smashed through the 5,000-point level for the first time.
Overnight on Wall Street shares jumped over one percent on the heels of strong gains in Europe as investors set aside worries about a credit squeeze resulting from problems in the US mortgage sector.
"Market worries stemming from the subprime loans problem are gradually easing as seen in the positive performances of overseas markets and the yen's depreciation," said Masahiko Sato, executive director at Nomura Securities.
Markets continued to weigh prospects of a cut to the US Federal Reserve's funds rate at which commercial banks lend to each other to further ease credit fears and to restore market stability.
"There are growing hopes that the Fed will lower its federal funds rate to calm the markets," said Kazuhiro Takahashi, equity department head of Daiwa Securities SMBC.
Dealers said investors were gradually regaining their confidence after the Fed on Friday cut its discount rate that it charges for lending to banks, helping to stem last week's brutal selloff.
Although the cut was seen as largely symbolic, it signalled that the US monetary authorities are becoming increasingly concerned about the health of the world's largest economy and the global financial system, analysts said.
In Tokyo the benchmark Nikkei-225 share index gained 2.47 percent by lunch, regaining the key 16,000 points level as exporters benefitted from a weaker yen which is positive for overseas earnings.
"Relief came from Wall Street's gains and the softer yen, which encouraged investors to buy back shares," said Hideo Mizutani, chief strategist at Sieg Securities.
Japanese investors were awaiting the outcome of a Bank of Japan interest rate meeting amid uncertainty about the monetary policy outlook.
Shanghai firmed 0.46 percent, extending to more than 85 percent its gains this year despite a slew of government measures to try to cool the market.
Elsewhere, Hong Kong share prices opened 3.2 percent higher, Seoul gained almost 3.0 percent, Sydney rose 2.7 percent and Singapore added 2.1 percent.
Taipei put on 2.38 percent, Jakarta climbed 2.9 percent, Kuala Lumpur was up 2.1 percent and Manila opened 1.8 percent higher.
Shares are more tempting in Asia than in the United States, the source of the recent market turmoil, said DMG Partners dealing director Gabriel Yap.
"Asia looks more attractive than the US, which is still plagued by the subprime problem," Yap said.
Hopes that the largest US mortgage provider Countrywide Financial could escape bankruptcy cheered markets, after Bank of America announced overnight it would invest two billion dollars in the troubled company, dealers said.
Surging home foreclosures in the US have forced home lenders out of business and sent shock waves through the multi-trillion dollar mortgage sector.
On Wall Street Wednesday news of a major investment by Dubai World into US gaming firm MGM Mirage gave sentiment a welcome lift, while the announcement that four major US banks tapped the Federal Reserve's discount funds window also helped ease some of the credit jitters, dealers said.
The yen lost ground in Asian trade as easing fears of a credit crunch reduced the risk aversion that drove the currency up sharply last week.
The dollar firmed to 115.92 yen in late Tokyo morning trade from 115.31 in New York late Wednesday. The euro gained to 157.03 yen from 156.17.