* Japan's Nikkei posts record 14 pct rise
* Credit spreads tighten modestly on bank rescue plans
* U.S. to inject $250 bln in big banks - sources
(Updates prices, adds European outlook, quotes)
By Kevin Plumberg
HONG KONG, Oct 14 (Reuters) - Asian stocks surged for a
second day on Tuesday, with Japan's Nikkei up a record 14
percent, as investors hoped plans from governments around the
world to take stakes in banks will stabilise the global
financial system and mark an end to the worst of the crisis.
Major European stock markets were expected to open as much
as 6.6 percent higher, according to financial bookmakers, and
U.S. stock futures <SPc1> were up 2 percent following news that
the U.S. government intends to inject up to $250 billion into
banks.
The yen fell broadly and the yield on the 10-year U.S.
Treasury note hit a two-month high as investors ditched
low-risk investments to scoop up heavily oversold shares.
Policymakers staged their biggest and most coordinated effort
yet to kickstart lending markets and ease credit strains.
Fears of a looming global recession were not dead, but for
now the sweeping emergency steps being enacted by governments
reduced the risk of financial system failure.
"It seems the tide has turned and a complete meltdown of
markets and a depression have been avoided. Investors can now
re-focus on fundamentals rather than the degree of panic in the
market," Dariusz Kowalczyk, chief investment strategist with
CFC Seymour in Hong Kong, wrote in a client note.
After plunging 24 percent last week, the Nikkei share
average <> soared 14.2 percent -- the biggest daily gain
ever -- following a holiday on Monday.
The MSCI index of other Asia-Pacific stocks <.MIAPJ0000PUS>
climbed 7.3 percent after hitting its lowest since December
2004 on Friday. In two days, the index has retraced more than
half its losses last week.
Hong Kong's Hang Seng index <> rose 4.4 percent, a day
after rising 10.2 percent -- its biggest single-day rise in 9
months.
The Dow Jones industrial average <> and the S&P 500
index <.SPX> of U.S. stocks posted record gains overnight,
jumping more than 11 percent. Global stocks added $1.7 trillion
in market value, the biggest single-day increase since the
financial crisis began 14 months ago, according to MSCI.
The U.S. government agreed on Monday to spend $250 billion
taking stakes in several big banks to shore up the banking
system and arrest the financial crisis, sources familiar with
the situation said. The move follows pledges by the governments
of Britain, Germany, France and other European countries of
more than 1 trillion euros ($1.36 trillion) to bolster their
banks. []
SIGNS OF LIFE
Money markets showed initial signs of life.
London interbank offered rates (Libor), the benchmark for
corporate, financial and household borrowing, eased in
sterling, euros and U.S. dollars at the daily fixing on Monday.
The spread of 3-month Libor over the 3-month U.S. Treasury
yield narrowed to 451 basis points from 459 bps. Three-month
futures of eurodollars <EDc1>, U.S. dollar-denominated deposits
held abroad, rose as dealers anticipated a further dip in
Libor.
The rally in global equities has been powerful, but
prospects for the rest of the quarter were unclear. Asian
investors have become much more risk averse, especially when it
comes to commodities, according to a quarterly ING Investor
Dashboard survey.
Twenty-eight percent of affluent investors in Asia ex-Japan
said they would invest in global resources in the fourth
quarter, down from 40 percent in the prior quarter. Thirty-five
percent said they would hold on to cash.
Government bonds were hard hit as equity markets rallied.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
more than a full point in price, pushing up the yield to a
2-month high of 4.09 percent from 3.88 percent late on Friday
in New York. U.S. bond markets were closed on Monday for a
holiday but stock markets traded.
The difference between the 10-year yield and the 2-year
yield, referred to as their yield curve, narrowed by 17 bps, as
investors essentially reduced bets on an aggressive interest
rate cut by the Federal Reserve this month.
However, Mike Turner, head of global strategy and asset
allocation with Aberdeen Asset Management in London, said in a
note that central banks in Britain, the euro zone and U.S.
should actually cut interest rates more to keep the crisis from
further damaging the global economy.
"We expect central banks to ease policy still further
following their coordinated 50 bp cut last week," he said.
"At the very least easing can generate some confidence in
capital markets whilst catering ultimately for the threat of
deflation should the financial crisis perpetuate the
contraction."
The benchmark 10-year Japanese government bond yield
<JP10YTN=JBTC> hit a three-month high of 1.630 percent.
The euro rallied 1.3 percent from late U.S. trading on
Monday to 140.34 yen <EURJPY=R>, having rebounded off a
three-year low of 132.15 yen hit on trading platform EBS on
Friday.
The U.S. dollar climbed 0.8 percent from late New York to
102.80 yen <JPY=>, having come off a six-month low of 97.91 yen
hit on Friday.
U.S. crude oil futures <CLc1> rose more than 4 percent
overnight and another 1.75 percent in early trade on Tuesday on
hopes the financial crisis may ease. Light sweet crude futures
were trading around $82.59 a barrel. []
And gold gained more than 2 percent <XAU=>, helped by
firmer oil prices and a stronger euro, recovering from its
biggest 2-day drop in more than a quarter of a century.
(Editing by Ian Geoghegan)
