* Fed expected to cut, speculation grows of BoJ easing
* Yen edges up but lower on the week vs U.S. dollar
* Oil climbs as stocks rally but gains are tame
(Updates prices, adds comments)
By Kevin Plumberg
HONG KONG, Oct 29 (Reuters) - Asian stocks and government
bonds rallied on Wednesday, on hopes the Bank of Japan and the
Federal Reserve will cut interest rates this week to spur
growth, while credit markets continued to show signs of
recovery.
Oil prices also rose as investors latched on to the upward
momentum in global equities, hoping for a sustained revival in
willingness to take risks for higher returns.
Attractive valuations in almost every industry inspired the
stock market rally, taking place after a brutal sell-off that
has seen Japan's Nikkei index <> fall as much as 40
percent in the past month.
Central banks around the world were expected to lower
benchmark interest rates further to support growth in coming
days. The Fed is widely expected to cut its key rate for the
ninth time since September 2007 later on Wednesday, and the
Bank of Japan will consider lowering its policy rate at a
meeting on Friday, according to sources familiar with the
matter. The Bank of England and the European Central Bank were
both forecast to lower borrowing costs as well next week.
[]
How much any of these actions will turn around near-term
prospects for major economies is unclear, especially since the
U.S. labour market is forecast to have lost nearly 180,000 jobs
this month and economists from JPMorgan to UBS see the global
economy sliding into recession.
"Given the severe recession into which the global economy
is slipping, it is likely that we have not seen the bottom of
the stock market yet, and this week's recovery presents a good
opportunity to sell," said Dariusz Kowalczyk, chief investment
strategist with CFC Seymour in Hong Kong in a note.
The Nikkei <> rose 6.4 percent, after plumbing its
lowest since 1982 on Tuesday. The index is still down 21
percent in October, causing speculation that Japanese banks
have likely taken big hits on their domestic portfolios.
Nomura Holdings Inc, <8604.T> Japan's largest brokerage,
posted its third consecutive quarterly net loss on Tuesday and
warned of potential losses on exposure to crisis-hit Iceland
and further write-downs on its stake in Fortress Investment
Group. <FIG.N>.
Asia-Pacific stocks outside Japan climbed 5 percent after
touching a 4-year low on Tuesday, according to an MSCI index
<.MIAPJ0000PUS>.
Hong Kong's Hang Seng index <> rose 4.7 percent after
soaring 14.4 percent on Tuesday in the biggest rally in 11
years. China Mobile stock <0941.HK> led the index higher,
rising 4.7 percent, but a 2.8 percent decline in HSBC shares
<0005.HK> held its rise below the benchmark MSCI.
Wall Street overnight posted its second-biggest rise ever,
with the Standard & Poor's 500 index <.SPX> spiking 10.8
percent.
BEWARE RISK
The U.S. dollar was down 0.5 percent on the day at 97.50
yen <JPY=>. Still, the dollar has gained nearly 4 yen in three
days as global equity markets rallied.
The yen has received a powerful boost as Japanese investors
close out of overseas trades and bring money back home. Thawing
short-term money markets and rallying stocks -- in addition to
the Group of Seven warning on yen strength on Monday -- have
slowed the currency's ascent, but the adverse environment for
risk makes it easy to resume.
"While one element of de-leveraging may have run its course
for now, we would remain concerned about risk trades while
funding costs remain high and U.S. house prices continue to
weaken. Risk aversion and falling interest rates in the Europe
should keep the dollar and yen supported against other
currencies," said Ashley Davies, currency strategist with UBS
in Singapore in a note.
The two-year Japanese government bond yield, which moves in
the opposite direction to the price, hit a six-month low of
0.56 percent <JP2YTN=JBTC> in anticipation of a central bank
rate cut.
Policymakers have bought themselves time to focus on
measures to support economic growth with previous efforts to
revive short-term lending markets appearing to have some
success.
The spread of 3-month London interbank offered rates, a
benchmark in international lending, over the 3-month U.S.
Treasury bill yield narrowed to 263 basis points, down sharply
from more than 450 basis points three weeks ago.
This week the Fed also kicked off its commercial paper
programme, which is aimed at helping companies raise short-term
funding for their daily operations. The commercial paper
market, the lifeblood of many blue-chip companies, virtually
shut down as a result of the credit crunch.
Commodity prices have been rising along with global equity
markets, but rallies have been much more modest given mounting
evidence the U.S. and Chinese economies are slowing rapidly,
reducing need for raw materials.
The Reuters-Jefferies CRB index <.CRB>, a global
commodities benchmark, ticked up 0.3 percent but was not far
from the lowest levels since December 2003 hit on Tuesday.
U.S. crude futures were trading up $1.91 at $64.64 barrel
<CLc1>, after rising as high as $65.80 earlier. In the last
month alone, oil has dropped $43 as a deep slowdown in demand
is factored in.
(Editing by Lincoln Feast)
