(Adds markets, quotes, updates prices)
By Louise Heavens
SINGAPORE, Jan 23 (Reuters) - Asian shares rallied on
Wednesday with Hong Kong jumping 7 percent after the Federal
Reserve's biggest interest rate cut in over two decades tempted
investors to beaten-down equities, but recession fears
lingered.
The dollar extended its losses against the euro in early
Asian trade after the Fed's emergency 75 basis-point interest
rate cut wiped out the U.S. currency's yield advantage over the
euro.
Industrial metals, such as copper <MCU3>, recovered some
lost ground after hefty falls this week on fears a U.S.
recession could derail demand, while safe-haven government
bonds extended gains to fresh multi-year highs.
Stocks around the globe have fallen sharply since the start
of the year, triggered by concerns global economic growth was
hitting a wall and financial institutions had more
subprime-related writedowns to reveal.
In an effort to shore up markets, the U.S. central bank
slashed rates to 3.5 percent on Tuesday. []
Some said the Fed's decision -- a week before a scheduled
rate meeting -- smelled of panic even though it halted the
global market meltdown.
"A lot of people see that the Fed's move yesterday was too
little," said Hideaki Inoue, forex manager at Mitsubishi UFJ
Trust and Banking in Tokyo.
"But given that they cut just a week before this month's
meeting, it does show that the Fed realises things are bad."
But for now, investors were in the mood to seek out
bargains, encouraged by the recovery on Wall Street, where
benchmarks managed to recover from their lows after a feverish
trading session on Tuesday.
Australia staged a dramatic comeback, where shares
initially raced up 7 percent -- on course for their biggest
daily gain in a decade. By 0218 GMT the S&P/ASX 200 index,
which had fallen 12 sessions in a row, was up 5.3 percent.
Miner BHP Billiton Ltd <BHP.AX> led the way, soaring 9.7
percent after a strong second-quarter production report. Rival
Rio Tinto <RIO.AX. added 6.8 percent.
Hong Kong's Hang Seng <> jumped more than 7 percent at
the open, helped by the Hong Kong Monetary Authority cutting
its base rate by 75 basis points in line with the Fed move.
In Tokyo, the Nikkei <> rebounded 3.4 percent by the
midsession, recovering some of its biggest one-day loss since
the Sept. 11 attacks on the United States on Tuesday. The index
is still down 15 percent just this month alone.
Seoul's KOSPI <> regained its poise following the
2-day sell-off, adding 2 percent to claw back some of the
index's 7 percent drop this week.
"It's still early in assessing the impact of the (Fed)
move, butsurely it was the best possible remedy to soothe panic
selling inmarkets," said Lee Kyung-soo, an analyst at Daewoo
Securities.
"Sometimes, panic selling helps investors see a bottom, and
I think we had that yesterday."
BEAR BREATHES DOWN NECK
Wall Street's benchmark indexes still hover close to bear
market territory as the prospect of a U.S. recession looms.
The blue-chip Dow average <> ended down about 1 percent
-- way above earlier lows but still 15.5 percent from its
October closing high above 14,000. The Nasdaq <> closed
down 19.8 percent from its October 2007 closing high.
On Tuesday, the International Monetary Fund warned a
significant slowdown in 2008 world economic growth appears
inevitable, and the restoration of financial markets is
expected to be a complex and long-drawn-out task. An IMF
spokesman, Masood Ahmed, said the Fed cut was "appropriate and
helpful.
"The volatile weakening experienced in many equity markets
during the past few days has underscored the burden that the
current financial market turmoil represents for the global
growth outlook," he said in a statement. []
In currency markets, the euro <EUR=> climbed as much as 0.4
percent to the day's high of $1.4685 and by 0226 GMT was
trading at $1.4632. It had risen 1.3 percent on Tuesday, its
biggest one-day percentage gain since early 2006.
Japanese government bonds gained, pushing the two-year
yield below to the Bank of Japan's overnight rate target on
mounting expectations for a rate cut later in the year.
The two-year yield <JP2YTN=JBTC> fell 3.5 basis points to
0.490 percent in morning trade.
Oil steadied above $89, with U.S. crude <CLc1> up 9 cents
to $89.30 a barrel.
"The Fed cuts ... will certainly shore economic sentiment
that has been driving prices lower recently, and shift
attention back to underlying tight fundamentals," BNP Paribas
senior oil analyst Harry Tchilinguirian said in a research
note.
Gold also recovered, with spot gold prices <XAU=> at around
$887 an ounce.
(Editing by Lincoln Feast)
