Asian stocks soar on possible US rescue package

Friday 19th September, 03:18 PM JST

HONG KONG —

Asian stock markets soared Friday after a punishing week as news of a possible U.S. government plan to rescue banks from toxic mortgage debt brought hope of a letup in the world’s worst financial crisis in decades.

Hong Kong’s Hang Seng Index jumped 7% at the open and was up 6.5% at the midday break at 18,779.03. Japan’s Nikkei 225 average was up 3.8% at 11,920.86.

In China, the Shanghai benchmark surged a stunning 9.5% after the government eliminated a tax on share purchases and said it was buying shares in state-owned banks. Stock measures in Taiwan, South Korea and Australia were also sharply higher.

Following days of steep losses, regional markets got a boost from overnight gains on Wall Street, where the Dow Jones industrial average surged 410.03, or 3.86%, to 11,019.69—the biggest percent gain since October 2002.

Investors also were encouraged by news that the U.S. government was seeking the power to rescue banks by buying distressed assets at the heart of the financial system turmoil that’s brought down Wall Street giants Lehman Brothers, Merrill Lynch and Bear Stearns.

Details of the plan were still being worked out, but U.S. Treasury Secretary Henry Paulson emerged from a nighttime meeting on Capitol Hill to say he hoped to have a solution “aimed right at the heart of this problem.”

“It definitely gives investors a light at the end of the tunnel,” said Daniel McCormack, a strategist for Macquarie Securities in Hong Kong. “The solution is of such a magnitude that it could eventually fix the problems ... That’s hugely important at the moment because that’s what markets are focused on.”

The biggest bonus of a potential government fix is it could help the banking industry as a whole, said Scott Fullman, director of derivative investment strategy for New York-based institutional broker WJB Capital Group. Until now, the U.S. government has selectively bailed out institutions that were the most vulnerable.

The news triggered a rally in U.S. stock futures, suggesting Wall Street would advance Friday, too. Dow futures rose 126 points, or 1.2%, to 11,108 and S&P 500 futures rose 32 points, or 2.6%, to 1,234.4.

“Bear markets are extremely sensitive, and this market on a scale of one to 10 is a 13,” Fullman said. “I don’t say any prudent money manager would say we’re out of the woods, but right in this moment it all seems positive and leading toward an upward move for the market going into Friday session.”

Further aiding the markets, the Bank of Japan pumped another 2 trillion yen into money markets, following Thursday’s coordinated effort by central banks around the world to keep the financial system liquid. It was the bank’s seventh injection this week.

Word of a possible U.S. bailout lifted Asian banks, which had tumbled earlier this week.

Macquarie Group Ltd, Australia’s biggest investment bank and securities firm, exploded 35%.

Shares of China’s biggest lender, Industrial & Commercial Bank of China Ltd, or ICBC, rose 14.2% in Hong Kong and 9.9 percent in Shanghai.

Japanese megabanks were up strongly, with Mitsubishi UFJ 9.8 percent higher and Mizuho Financial Group adding 9.6%.

In China, the market was driven partly by a government move to shore up the ailing markets by eliminating a 0.1% tax on share purchases, effective Friday. The government also announced plans to use an investment fund to buy stocks in three major banks to help stabilize their share prices, down sharply following Lehman Brothers’ bankruptcy.

Bank of China, the country’s second-largest lender, surged 10%, the daily maximum limit. China Construction Bank also had gained 10%.

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AP writer Jay Alabaster in Tokyo and AP Business Writers Elaine Kurtenbach in Shanghai and Joe Bel Bruno in New York contributed to this report.

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9 Comments

Molenir at 05:54 PM JST - 19th September

Markets are up, on very bad news. Another government bailout, this one costing trillions. Do people never learn. Wasn't the S&L failure and the Resolution Trust bailout enough of a lesson?!
barfly08 at 06:42 PM JST - 19th September

Once again the American's demonstrate the depth of their wallets. No other nation could handle this kind of banking crisis. Just look at how Japan muddled around for 15 years after their housing bubble burst. The Americans are about to turn this around in a week ! Amazing !
freakashow at 08:30 PM JST - 19th September

How many more investment giants have to fall before the U.S. government realizes that they have to get their act together. The U.S. government is all "reactionary" and no "precautionary". Well, guess what Bush, it's too late. Your 300 dollar per taxpayer economic stimulus plan didn't work, and your "possible" U.S. rescue package has a lot of holes in it as well. After all, you don't use band aids to fix a severed leg.
Good_Jorb at 11:10 PM JST - 19th September

Being from Canada I find this particularly ironic, after years and years of calling Canada and Europe socialist welfare states, the US in a matter of fews weeks has become the most expensive socialist (corporate) welfare state ever, essentially becoming the United Socialists of America. Writing what will be possibly be the biggest welfare check ever to be written. The sad part of it is the average American will not see any of this money, instead they and future generations will inheret hundreds of billions in debt, that they will have to pay with thier taxes. Well the people who mismanaged the whole problem, just get richer. All during a Republican presidency, who know true capitalist, no welfare, no government intervention, let the free market do what it does, deregulation and private ownership of companies.
jeancolmar at 11:23 PM JST - 19th September

Well, all this proves one thing. Free market capitalism, so-called, does not work. This crisis is the result of years of deregulation. And guess who rushes in to save capitalism from the point of collapse? Big Government. Big Government comes in to foot the bills of the irresponsible capitalists and regulate them and no one is screaming "creeping socialism." Uh, uh. The stock market rallies.

The screamer is that this is all being carried out by a neocon government.

Nice post Good jorb. Of course, as the joke good, the US always has had socialism for the rich and capitalism for the poor.
jeancolmar at 11:58 PM JST - 19th September

As the jokes goes, I meant to say....
Molenir at 01:30 AM JST - 20th September

No, this isn't capitalism. And there are people who are screaming socialism. What gets me, is all these people who love capitalism, until they do something stupid, then they're all, I hate capitalism. Save me with socialism from my stupidity.
freakashow at 11:30 AM JST - 20th September

We should all remember that this bailout plan has not been approved and passed by Congress yet, and thus we may not see the results of it for some time. It is also not assured that it will be a total success at all. At best, it will probably stop the dramatic decreases in housing prices, but banks will have to start trusting each other and consumers more. Overall, analysts are cautiously optimistic and fear more home foreclosures and troubled banking institutions are on the horizon.
freakashow at 11:55 AM JST - 20th September

To add, it is now known that Bush is asking for in excess of 500 billion dollars to use for this radical bailout plan. Where is he going to get that kind of money? We've already spent billions of dollars on the Iraq and Afghanistan wars.