* Rate cuts, increased liquidity brighten investor
sentiment
* MSCI Asia ex-Japan stocks set for record rise of 10 pct
* Oil trades above $70, boosted by weakness in U.S. dollar
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Oct 30 (Reuters) - Asian stocks were set for a
record rise and a third straight day of gains on Thursday as
lower borrowing costs and international efforts to provide
liquidity to emerging markets coaxed investors from safe havens
like the yen.
Markets in Japan, Hong Kong and South Korea rocketed 10-12
percent higher, dragging along commodity prices in the wake of
the Federal Reserve's cut in rates to the lowest since June
2004, aimed at softening the blow of a potentially deep U.S.
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.
Major European share markets were expected to open up as
much as 2.1 percent, according to financial bookmakers, with
the European Central Bank and the Bank of England expected to
lower their own respective interest rates next week.
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.
The MSCI Asia-Pacific ex-Japan stocks index <.MIAPJ0000PUS>
rose 10 percent, up a third day and on track for the biggest
daily gain since the index was started in 1988. 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 10 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 percent, leading the
region higher with its largest ever daily increase, 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 10.1 percent,
with shares sensitive to fluctuations in commodity prices among
the top gainers. CNOOC <0883.HK>, China's biggest offshore oil
refiner, leapt 18 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 European single currency jumped 3.1 percent against the
yen to 130.10 yen <EURJPY=R> after briefly rising above 131
yen. Just last Friday the euro hit a 6-1/2-year low below 114
yen.
The euro to just above 131 yen <EURJPY=R>. The euro hit a
6-1/2-year low below 114 yen last Friday.
The dollar rose 1.0 percent to 98.35 yen <JPY=> after
briefly climbing above 99 yen. It hit a 13-year trough of 90.87
yen 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 $2.72 above
$70.22 barrel <CLc1>, having risen around $9 from the lowest
level since May 2007 reached on Monday.
(Editing by Lincoln Feast)
