Asian Stocks Gain on U.S. Fed Low-Rate Pledge

By Shiyin Chen - Aug 10, 2011

Asian stocks climbed for the first time in seven days, and commodities rallied, with oil rebounding from a 10-month low, after the Federal Reserve pledged to keep interest rates near zero through mid-2013. Treasuries dropped.

The MSCI Asia Pacific Index added 2.3 percent as of 3:05 p.m. in Tokyo as global equities rebounded from a nine-day, $7.8 trillion rout. Euro Stoxx 50 futures jumped 1.4 percent, while Standard & Poor’s 500 Index futures slid 0.1 percent. Treasury 10-year notes increased four basis points. The cost of insuring Asian debt from default sank the most since May 2010. The Swiss franc weakened against all 16 major peers. Crude rose 3 percent in New York and copper gained for the first time in six days.

Fed Chairman Ben S. Bernanke and his colleagues vowed to keep borrowing costs at an all-time low and discussed a range of policy tools to bolster the economy, saying they are prepared to use them “as appropriate.” Analysts surveyed by Bloomberg say China and Australia may leave rates unchanged for the rest of this year, adding to signs policy makers will take steps to spur growth and restore confidence amid the global market turmoil.

“Stocks became oversold on the back of global growth worries” Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has $100 billion under management, said in a Bloomberg Television interview. “We’re due for a bounce and Bernanke has provided that.”
Stocks Rebound

More than three shares rose for every one that retreated on MSCI’s Asia index, helping the gauge halt a six-day, 13 percent slump. The MSCI All-Country World Index fell 15 percent in the nine days ended Aug. 8 before rebounding 2.1 percent yesterday. Global equity markets recovered about $923 billion in values.

Japan’s Nikkei 225 Stock Average rose 1.1 percent and Australia’s S&P/ASX 200 Index jumped 2.8 percent. South Korea’s Kospi Index advanced 0.3 percent after the government yesterday banned short selling for three months and the two biggest state- run pension funds said they may boost equity investments.

Tokyo Electric Power Co. rallied 15 percent after the utility said there was no chance of insolvency even after a 572 billion yen ($7.4 billion) quarterly loss. Zijin Mining Group Co. climbed 7.2 percent in Hong Kong after China’s largest gold producer by market value reported first-half profit that beat analyst estimates.

The S&P 500 jumped 4.7 percent yesterday, the most since March 2009. The U.S. gauge rebounded from a 6.7 percent sell-off on Aug. 8 that was spurred by S&P’s unprecedented downgrade of the U.S. government’s credit rating to AAA to AA+. The reduction left America’s rating above countries such Japan and China and wasn’t matched by Fitch Ratings and Moody’s Investors Service, which affirmed the U.S. at the top grade.
Demand for Treasuries

Yields on 10-year Treasuries increased to 2.29 percent today. They briefly fell to record low of 2.03 percent yesterday following the Fed statement before closing at 2.25 percent. The Treasury is scheduled to sell $24 billion of 10-year notes today and $16 billion of 30-year debt tomorrow. Yesterday’s sale of $32 billion in three-year notes drew stronger-than-average demand, with a bid-to-cover ratio of 3.29. That compares with an average of 3.15 for the past 10 sales.

The rate decision represents the biggest effort since November to spark the U.S. economy and revive confidence. The Fed stopped stopping short of initiating further large-scale asset purchases, following the completion of the second round of so-called quantitative easing in June, in which it bought $600 billion of government bonds.

The central bank offered a dimmer view of the economy than it did in the last statement in late June, saying that it expects a “somewhat slower pace of recovery over coming quarters.”
‘Vote of Confidence’

“We’re starting the process of finding a bottom after the panic,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, said on Bloomberg TV. “I like what the Fed did. They took a calmer approach and said, we’re going to pay attention to the economy, and the market, you’re on your own. That was a vote of confidence.”

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan decreased 13.5 basis points to 135.5 basis points, according to Credit Agricole CIB prices. That would be its biggest one-day decline since May 27, 2010, according to data provider CMA.

The Markit iTraxx Australia index fell 11.5 basis points to 137.5, Credit Agricole prices show. The gauge snapped six days of increases and is on course for the steepest daily decline since June 21, 2010, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Franc Slides

Switzerland’s franc weakened after having gained 23 percent this year against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Currency Indexes. The Swiss currency slid to 72.93 centimes per dollar after yesterday surging to a record high of 70.71 centimes.

South Korea’s won climbed 0.7 percent to 1,080.20 per dollar after earlier gaining to 1,073.35, while Malaysia’s ringgit strengthened 0.6 percent to 3.0090 per dollar, rebounding from near its weakest level since June.

“The market interpreted the Fed statement as a possible sign of quantitative easing,” said Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank Pcl. “More quantitative easing would lead to investors diversifying into other currencies, and that would support Asian currencies.”
Asia’s Rates

Australia’s dollar slid 0.1 percent to $1.0348. The currency, which fell yesterday below parity with the U.S. dollar since March, erased earlier gains of as much as 0.6 percent after a Westpac Banking Corp. and Melbourne Institute survey showed consumer confidence slumped this month to its lowest in more than two years.

The Reserve Bank of Australia will maintain borrowing costs at 4.75 percent until the first quarter of next year, according to the median of 22 estimates in a Bloomberg News survey. A poll six days ago showed the consensus was for a quarter percentage point increase on Nov. 1. Interbank cash-rate futures indicate the RBS’s key rate may fall to 3.49 percent by December from 4.75 percent.

Central banks elsewhere in Asia may also delay interest- rate increases. The People’s Bank of China will leave borrowing costs unchanged for the rest of this year, according to eight of 10 analysts surveyed yesterday. Economists’ median forecast is for South Korea to extend a pause for a second month tomorrow, while Indonesia stayed on hold yesterday.

Crude for September delivery rose to $81.69 a barrel on the New York Mercantile Exchange, recovering from a two-day, 8.7 percent slump. U.S. crude inventories declined the most since June, according to the industry-funded American Petroleum Institute. Gasoline inventories also fell.

Metals gained on the London Metal Exchange, with three- month delivery copper climbing as much as 3.1 percent to $9,005 a ton. The contract sank to an eight-month low yesterday. Nickel and zinc both increased more than 3 percent to $21,899 a ton and $2,176.75 a ton, respectively.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net
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