* Fed expected to cut rates, 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 European outlook)
By Kevin Plumberg
HONG KONG, Oct 29 (Reuters) - Most Asian stock markets and
government bonds rose on Wednesday, on hopes the Bank of Japan
and the Federal Reserve will cut interest rates this week in a
bid to spur economic growth, while credit markets showed
further signs of recovery.
Major European share markets were expected to open as much
as 5 percent higher after a massive rally on Wall Street, with
financial bookmakers predicting continuing global momentum as
investors search through badly-battered stocks for bargains.
Attractive valuations in almost every industry inspired the
stock market rally, after a brutal sell-off that has seen
Japan's Nikkei index <> fall as much as 40 percent in the
past month. But many investors feared the gains may be
short-lived.
Central banks around the world were expected to lower
benchmark interest rates further in coming days to shore up
sputtering growth amid the worst financial upheaval in 80
years.
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 <> ended up 7.7 percent, after plumbing its
lowest since 1982 on Tuesday. The index is still down 20
percent in October, prompting speculation that Japanese banks
have taken big hits on their domestic portfolios and will
report sharply lower earnings.
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 2.3 percent after
touching a 4-year low on Tuesday, according to an MSCI index
<.MIAPJ0000PUS>.
Hong Kong's Hang Seng index <> rose 1.4 percent after
soaring 14.4 percent on Tuesday in the biggest rally in 11
years.
Chinese oil producer CNOOC Ltd <0883.HK> led the index
higher, rising 14.6 percent after a production update, but a
6.9 percent drop in shares of global bank HSBC <0005.HK> eroded
some of the morning session gains.
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 more than 1 percent on the day
around 96.80 yen <JPY=>. Still, the dollar has gained nearly 3
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 a 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," Ashley Davies, currency strategist with UBS in
Singapore, said in a note.
"Risk aversion and falling interest rates in the Europe
should keep the dollar and yen supported against other
currencies."
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 may 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 cost of protection against debt default in Asia fell,
led by sovereign bonds. International Monetary Fund packages
for Hungary, Iceland and Ukraine in a matter of days have
lessened the immediate risk of an emerging market meltdown.
However, lack of liquidity, particularly for non-investment
grade debt, as well as the grim global economic outlook kept
uncertainty high.
"Sovereigns are assuming all the risk in the world because
they are essentially doing everything they can to prevent a
Great Depression part 2," said Brayan Lai, credit analyst for
Calyon in Hong Kong.
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.
U.S. crude futures were trading up $1.95 at $64.68 barrel
<CLc1>, after rising as high as $66.71 earlier. In the last
month alone, oil has dropped $43 as a deep slowdown in demand
is factored in.
