Asian stocks soar on US mortgage bailout (AFP)
08.09.2008 11:55 Finance
The Tokyo and Hong Kong markets rose more than three percent as investors cheered Sunday's dramatic move in Washington aimed at shoring up the troubled US housing market.
"Markets reacted positively at first glance to the news because it dispelled uncertainty about credit and fears of a worsening housing market," said Masatsugu Miyata, a forex dealer at Hachijuni Bank in Tokyo.
The sudden upturn came on the heels of a worldwide slump Friday after US unemployment soared to a five-year high, sparking fresh talk of a recession in the world's biggest economy.
Tokyo's benchmark Nikkei-225 index rose 3.38 percent, while Hong Kong was up 3.87 percent in late trade. Seoul soared 5.25 percent and Sydney closed up 3.9 percent. Singapore and Mumbai were both up some four percent.
But some dealers said that the gains could be short-lived as the US bailout could further strain government finances and burden taxpayers with billions of dollars.
"The fundamental problem does not lie with the mortgage businesses but with the economy and housing market that went bust," Sumitomo Mitsui Banking Corp. chief strategist Daisuke Uno said.
And worsening economic conditions could further devalue Freddie and Fannie securities, which would send Washington's plan up in flames, he warned.
In a sign of caution about the takeover, currency markets began to sell off the dollar against currencies except the yen, dealers said.
The euro gained to 1.4407 dollars from 1.4260 while the pound firmed to 1.7908 dollars from 1.7653.
The move also took a toll on long-dated US and Japanese bonds as investors dumped the safe haven, government-backed assets, dealers said.
Shanghai bucked the upbeat trend across Asia on Monday, with Chinese shares sliding 2.54 percent in afternoon trade.
While dealers in China also welcomed the US bailout, China is beset by concerns of a domestic credit crunch as giant public offerings sap up liquidity, dealers said.
The US Treasury Department announced Sunday, when markets were closed, that it will put Freddie Mac and Fannie Mae under strict federal control and may invest up to a total of 200 billion dollars in them.
The companies have lost some 90 percent of their value on fears of further losses from mortgage defaults by "subprime" customers, who were given loans despite patchy credit histories.
The subprime crisis has ballooned into a global credit crunch, pummelling stock markets around the world since late last year.
The Japanese government also welcomed the bailout plan.
"This will remove one factor causing instability in the US economy and have a good impact on the world economy," Finance Minister Bunmei Ibuki told reporters.
"Given that the dollar is an international currency, Japan welcomes the move," he said.
Ibuki said that US Treasury Secretary Henry Paulson would hold a conference call later Monday to brief his counterparts in the other Group of Seven major economies -- Britain, Canada, France, Germany, Italy and Japan.
In Japan, some analysts likened the US takeover to Japan's own bailout of its banks in the late 1990s, which helped them overcome a bad loans crisis in Asia's largest economy.
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