* Rate cuts, increased liquidity improve investor sentiment
* S.Korea stocks up 12 pct on forex swap line with Fed
* Oil trades above $69, boosted by weakness in U.S. dollar
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(Recasts, updates prices, adds quote)
By Kevin Plumberg
HONG KONG, Oct 30 (Reuters) - Asian stocks rose for a third
day on Thursday, led by a 12 percent surge in South Korea, on
international efforts to provide liquidity to emerging markets
and global prospects of lower borrowing costs.
Commodity prices jumped and the yen weakened in the wake of
the Federal Reserve's cut in rates to the lowest since June
2004, to soften the blow of a potentially deep recession.
[]
China, Hong Kong, Norway and Taiwan all delivered cuts of
their own, and pressure mounted on the Bank of Japan to reduce
rates after it meets on Friday.
The avalanche of government measures taken to increase bank
liquidity, including $120 billion of currency swap lines opened
between the Fed and four developing economies, and global rate
cuts have prompted investors to make room in their cash-heavy
portfolios for riskier assets. Credit availability and risk
taking are essential to the functioning of the financial
system.
"Ongoing policy initiatives from global central bankers and
policymakers are finally gaining some traction," said Patrick
Bennett, Asia foreign exchange and rates strategist with
Societe Generale in Hong Kong.
"Despite the welcome responses to policy actions, risk from
slower global growth has not been extinguished and still points
to potential underperformance for much of Asia," he said in a
note.
Asia-Pacific stocks traded outside Japan climbed for a
third day, up 10.2 percent, according to an MSCI index
<.MIAPJ0000PUS>. The last time the index rose for three
straight days was in mid June, reflecting the relentless
selling that has battered shares. The index is still down 54
percent so far this year.
Investors have snapped up global equities this week on the
first sign of improving sentiment, with valuations in some
markets at extreme levels. For example, the ratio of prices to
book value on Japan's Nikkei share average <> dropped on
Monday to 0.87, the lowest in more than a decade.
The Nikkei rose 8.4 percent, recovering from a 26-year low
hit on Tuesday. The weaker yen emboldened investors to buy
shares of exporters such as Honda Motor Co <7267.T> and Canon
Inc <7751.T>.
South Korea's KOSPI <> surged 12.5 percent, leading
the region higher, after the government established a $30
billion currency swap line with the U.S. central bank. The
measure would likely relieve pressure on banks to refinance
foreign debt.
Hong Kong's Hang Seng index <> gained 10 percent, with
shares sensitive to fluctuations in commodity prices among the
top gainers. CNOOC <0883.HK>, China's biggest offshore oil
refiner, leapt almost 19 percent.
U.S. stocks mostly fell overnight as a big rally faltered
in the last minutes of trading on worries about the weakening
corporate profit picture after a news report raised questions
about General Electric's <GE.N> earnings outlook. []
EMERGING OPTIMISM
The yen weakened on the combination of increasing risk
appetite as well as expectations of the first rate cut by the
Bank of Japan since the financial crisis broke out more than a
year ago.
The euro jumped more than 2 percent to just above 131 yen
<EURJPY=R>. The euro hit a 6-1/2-year low below 114 yen last
Friday.
The U.S. dollar was trading at 98.30 yen, <JPY=> staying
well above a 13-year trough of 90.87 yen hit on trading
platform EBS late last week.
Analysts at Morgan Stanley however said they still expected
the yen to continue climbing.
"Our view is that yen strength owes more to de-risking and
repatriation flows that do not seem to have run their course,
yet," they said in a note.
In addition to foreign exchange swaps established between
the Fed and central banks in Brazil, Mexico, Singapore and
South Korea, the International Monetary Fund in a separate
action set up a short-term fund for countries with good track
records but in need of capital.
The two measures improved sentiment on emerging markets and
helped to propel the Korean won 10 percent higher against the
U.S. dollar <KRW=> and cut the cost of protection against a
default on Asian government debt.
Emerging markets have been a source of pain for many
investors, including hedge funds. Last month, the Credit
Suisse/Tremont emerging markets hedge fund index showed a loss
of 8.9 percent, the biggest in a decade, exceeding the 6.5
percent decline on the benchmark hedge fund index.
Raw materials prices rose in the wake of the U.S. dollar's
sharp decline overnight. U.S. crude futures were up more than
$2.00 above $69.73 barrel <CLc1>, having risen about $8 from
the lowest level since May 2007 reached on Monday.
(Editing by Dhara Ranasinghe)
