Asian stock markets soared today as a news of a US government plan to rescue banks from risky mortgage debt brought hope of a let-up in the world’s worst financial crisis in decades.
Japan’s Nikkei 225 average advanced 3.2% to 11,859.75, while Hong Kong’s Hang Seng Index shot up nearly 7% to 18,836.90.
Stock measures in China, Taiwan, South Korea and Australia were also sharply higher.
After a week of steep losses, regional markets were lifted partly by overnight gains on Wall Street, where the Dow Jones industrial average surged 410.03, or 3.86%, to 11,019.69 – the benchmarks biggest%age point gain since October 2002.
Investors also were reacting to news that the US government was seeking the power to rescue banks by buying distressed assets at the heart of the financial system’s crisis that has brought down Wall Street giants Lehman Brothers, Merrill Lynch and Bear Stearns.
Details of the plan were still being worked out, but US Treasury Secretary Henry Paulson emerged from a night-time meeting on Capitol Hill to say he hoped to have a solution “aimed right at the heart of this problem”.
The news powered Asian financials higher, with China’s biggest lender, Industrial & Commercial Bank of China Ltd, or ICBC, rising 14%. Banks in Japan and Australia also gained.
In currencies, the dollar climbed against the yen to 106.74.
The US rebound also came after an infusion of billions of dollars by the Federal Reserve and world governments aimed at getting nervous banks to stop hoarding money and lend again.
Stocks had fluctuated throughout the day, without severe swings in either direction, until it was reported the Bush administration might back a new agency to take bad assets off the books of struggling financial institutions, much like it did in the aftermath of the savings and loan crisis of the 1980s.
After the overnight discussions, Mr Paulson said the goal was to come up with a “comprehensive approach that will require legislation” to deal with the bad debts, or illiquid assets, on bank’s balance sheets. He did not provide any details, but the plan taking shape called for Congress to give the administration the power to buy distressed bank assets.
Mr Paulson, Fed chairman Ben Bernanke and other officials planned to work through the weekend on a solution. House Speaker Nancy Pelosi said that once the administration had presented its proposal, “we hope to move very quickly” to come to an agreement.
There was no immediate word how much the rescue plan might cost.
The banks still standing are staggering under the weight of billions of dollars of bad loans and mortgage debt arising from the wave of home foreclosures in the United States, and lending has tightened around the world in response.
Christopher Cox, chairman of the Securities and Exchange Commission, said the SEC may put in a temporary emergency ban on all short-selling – not just the aggressive forms it already has targeted, according to a person familiar with the matter.
Short-selling is when investors borrow stocks in a company to sell it, hoping to buy it back at a cheaper price later on and return it, pocketing the difference as profit.
The ban might apply to stocks of selected financial companies, to all financial companies or even possibly to all public companies. Short-selling, which has been practised on Wall Street for decades, is not illegal.
Commenting on US rescue efforts, Daniel McCormack, a strategist for Macquarie Securities in Hong Kong, said: ``It definitely gives investors a light at the end of the tunnel.
“The solution is of such a mangnitude that it could eventually fix the problems ... That’s hugely important at the moment because that’s what markets are focused on.”
The largest bonus of a potential government fix is it could help the banking industry as a whole, said Scott Fullman, director of derivative investment strategy for New York-based institutional broker WJB Capital Group. Until now, the US government has selectively bailed out institutions that were the most vulnerable.
“Bear markets are extremely sensitive, and this market on a scale of one to 10 is a 13,” Mr Fullman said. “I don’t say any prudent money manager would say we’re out of the woods, but right in this moment it all seems positive and leading towards an upward move for the market going into Friday session.”
Meanwhile shares of Macquarie Group, Australia’s biggest investment bank and securities firm, exploded 44%. In Hong Kong, China’s biggest lender, Industrial & Commercial Bank of China, or ICBC, rose 14%. Banks in Japan and Australia also gained.
China shares rebounded after the government eliminated a 0.1% tax on share purchases, effective today, moving to shore up the ailing markets.
The government also announced plans to use an investment fund to buy stocks in three major banks to help stabilise their share prices, which had plunged following Lehman Brothers’ announcement that it has filed for bankruptcy.
In Shanghai, ICBC was up 9.9%, Bank of China surged 10% , the daily maximum limit, and China Construction Bank also had gained 10%.