(Adds quotes, European forecast, updates prices)
By Louise Heavens
SINGAPORE, Jan 23 (Reuters) - Asian shares rallied on
Wednesday after the Federal Reserve's biggest interest rate cut
in over two decades, but nagging fears of a U.S. recession
prompted many indexes to give up some of their early gains.
Europe's stock markets were tipped to notch up modest
opening gains, with financial bookmaker CMC Markets predicting
Britain's FTSE 100 <.FSTE>, Germany's Dax <> and France's
CAC-40 <> will rise between 0.2-0.4 percent.
As the cloud of a U.S. recession still hung over markets,
demand for safe-haven government bonds remained strong, pushing
the two-year Japanese bond yield <JP2YTN=JBTC> below to the
Bank of Japan's overnight rate target on mounting expectations
for a rate cut later in the year.
Bonds were also underpinned by a drop in S&P 500 futures
<SPc1>, pointing to another weak session on Wall Street.
The dollar <JPY=> reversed an earlier rally to fall one yen
from the day's high.
Some said the Fed's decision -- a week before a scheduled
rate meeting -- smelled of panic even though it halted the
global market meltdown that has knocked more than 12 percent
off MSCI's All Country World index <.MIWD00000PUS> since the
start of the year.
"I don't think that's the fix-all for markets. It's a
reinstatement of the fact that yes, there's a slowdown," said
Bhaskar Laxminarayan, chief investment officer, Asia for Swiss
Bank Pictet & Cie in Singapore.
"That means lower demand for things. That means lower sales
or lower margins, and therefore the way we value companies has
to be looked at differently."
Concerns global economic growth was hitting a wall and
financial institutions had more subprime-related write-downs to
reveal have haunted markets since the start of the year.
In an effort to shore up confidence, the U.S. central bank
slashed its benchmark rate by three-quarters of a percentage
point to 3.5 percent on Tuesday. []
Clement Ho, chief investment officer with Hang Seng
Investment Management in Hong Kong, said a further cut of 50
basis points would be needed when the Fed meets later this
month to boost confidence, and anything less could trigger
further stock market falls.
HANG SENG LEADS WAY
Most stock markets were still in positive territory with
Hong Kong's Hang Seng <> up 6.2 percent by 0632 GMT, and
the Shanghai Composite <> recovering from a brief wobble
to post a 3 percent gain.
But Seoul's KOSPI <> was up just 1.2 percent, paring
initial gains. The benchmark suffered its biggest daily
percentage fall in five months to an eight-month closing low on
Tuesday.
Taiwan's TAIEX <> fell 2.3 percent, dragged down by
technology shares. U.S. technology shares fell in after hours
trade after iPod and iPhone maker, Apple <AAPL.O> tumbled 12
percent on fears the weak economy would hurt the Macintosh
maker.
Apple Inc forecast a quarterly profit far below analysts'
expectations on Tuesday and posted disappointing holiday-season
iPod shipments. []
Australia's benchmark S&P/ASX 200 index <> closed up
4.4 percent, off an initial 7 percent jump, but halting a
12-day losing streak.
Miner BHP Billiton Ltd <BHP.AX> lent support with a 9
percent rally after a strong second-quarter production report.
In Tokyo, the Nikkei <> ended 2 percent higher,
recovering some of its biggest one-day loss since the Sept. 11
attacks on the United States on Tuesday. The index is still
down more than 16 percent this month alone.
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 appeared
inevitable, and the restoration of financial market stability
was set 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 after rising 1.3 percent
on Tuesday, its biggest one-day percentage gain since early
2006.
Oil fell below $89, with U.S. crude <CLc1> down 50 cents to
$88.71 a barrel.
Gold also struggled to hold onto gains, with spot gold
prices <XAU=> at around $888 an ounce.
(Additional reporting by Jeffrey Hodgson in Hong Kong)
(Editing by Tomasz Janowski)
