Asia stocks surge 10% after rate cuts

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(Agencies)
Updated: 2008-10-30 15:54

Emerging Optimism

The yen weakened on the combination of increasing risk appetite as well as expectations of the first rate cut by the Bank of Japan since the financial crisis broke out more than a year ago.

Traders on the floor of the New York Stock Exchange. An interest rate cut by the US Federal Reserve and its announcement of multi-billion-dollar currency swaps has sent Asian stocks soaring as signs emerged of a thaw in world credit markets. [Agencies]

The European single currency jumped 3.1 percent against the yen to 130.10 yen after briefly rising above 131 yen. Just last Friday the euro hit a 6-1/2-year low below 114 yen.

The euro to just above 131 yen. The euro hit a 6-1/2-year low below 114 yen last Friday.

The dollar rose 1.0 percent to 98.35 yen after briefly climbing above 99 yen. It hit a 13-year trough of 90.87 yen on trading platform EBS late last week.

Analysts at Morgan Stanley however said they still expected the yen to continue climbing.

"Our view is that yen strength owes more to de-risking and repatriation flows that do not seem to have run their course, yet," they said in a note.

The US.Federal Reserve cut rates by 1/2 a percentage point, in line with most analysts' forecasts. [Agencies]

In addition to foreign exchange swaps established between the Fed and central banks in Brazil, Mexico, Singapore and South Korea, the International Monetary Fund in a separate action set up a short-term fund for countries with good track records but in need of capital.

The two measures improved sentiment on emerging markets and helped to propel the Korean won 10 percent higher against the US dollar and cut the cost of protection against a default on Asian government debt.

Emerging markets have been a source of pain for many investors, including hedge funds. Last month, the Credit Suisse/Tremont emerging markets hedge fund index showed a loss of 8.9 percent, the biggest in a decade, exceeding the 6.5 percent decline on the benchmark hedge fund index.

Raw materials prices rose in the wake of the US dollar's sharp decline overnight. US crude futures were up $2.72 above $70.22 barrel, having risen around $9 from the lowest level since May 2007 reached on Monday.

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