* Yen falls on coordinated action to bolster global economy
* Fear remains potent; VIX climbs to record high
* More Federal Reserve rate cuts seen this month
By Kevin Plumberg
HONG KONG, Oct 9 (Reuters) - Asian stocks rose and the yen
slipped on Thursday after central banks from China to Europe
and the United States cut interest rates to support the global
economy, though investors remained fearful with credit markets
still nearly frozen.
In an unprecedented display of international coordination,
the Federal Reserve, the European Central Bank along with
several others including China's central bank on Wednesday
executed an emergency rate cut, hours after equity markets
plunged in Asia and Japan's Nikkei chalked up its biggest
decline since the 1987 crash. []
Still, analysts said more will certainly have to be done by
policymakers before the worst financial crisis since the Great
Depression is over, particularly with a meeting of the Group of
Seven rich nations coming up on Friday. In the meantime the
historic actions have made price action more of a two-way
street.
"The cut last night in interest rates by the central banks
around the world is an important repair step. We now believe it
is time for patient, long-term equity investors to start to
commit funds to those top-quality companies that have been
beaten down so badly," said Donald Straszheim, vice chairman of
Roth Capital Partners in Los Angeles, in a note to clients.
Tokyo's Nikkei share average <> rose 1.3 percent after
plummeting more than 9 percent on Wednesday to its lowest close
since June 2003.
The MSCI index of Asia-Pacific shares outside of Japan rose
1.3 percent <.MIAPJ0000PUS>, edging back from the prior day's 9
percent drop, which was the biggest single-day tumble in at
least 20 years.
Hong Kong's Hang Seng index <> rebounded 2 percent
after three-days of losses had taken it to the lowest close in
two years.
Australia's benchmark S&P/ASX 200 index <> dropped 1.5
percent, led by the mining and bank industries, despite a full
one-percentage point cut in borrowing costs earlier this week
by the Reserve Bank of Australia.
The yen slipped after soaring higher overnight, with
dealers unravelling some safety trades. However, many analysts
say the yen will likely remain firm as long as the crisis
persists because of the appeal of Japan's current account
surplus and its stable financial sector.
The dollar rose 1.1 percent against the yen to 100.24 yen
<JPY=>, rebounding from a six-month low of 98.60 yen hit on
Wednesday.
The euro also recovered against the yen, up 0.9 percent at
136.60 yen <EURJPY=R>, after falling to a three-year low of
134.15 yen on Wednesday.
The global actions to ease monetary policy were not taken
without risks. Economists said dysfunctional short-term lending
markets could mute the intended effects of such broad-based
measures. Without the flow of credit, the global economy is
still likely on a path to slowing sharply.
"A risk for serious global recession has increased as the
coordinated rate cuts are not doing much in stabilising
financial markets. That would have an adverse effect on Asian
economies, in which the manufacturing sector has a large
share," said Masamichi Adachi, senior economists with JPMorgan
Securities in Tokyo.
Base metal prices continued to fall, with Shanghai zinc
prices down by their 4 percent limit on concerns about
industrial demand.
After more than a year of dislocations in money markets,
which have spiralled in the last month, investors have become
convinced any solution will take time to work.
Moments before the coordinated rate cuts, London interbank
offered rates were fixed notably higher, leading to the biggest
spread of 3-month LIBOR over overnight index swap rates --
essentially where central bank rates are expected to be headed
-- since the credit crisis began.
Even after the central bank action, the Chicago Board
Options Exchange Volatility index, better known as the VIX
<.VIX>, shot up to a record high of 59.06, having risen more
than 36 points in the last month.
Japanese government bonds fell as equity markets edged up.
The 10-year JGB future was down 0.6 point to 138.98 <2JGBv1>.
U.S. Treasury debt prices were flat after a sharp decline
overnight after a poor auction for on older 10-year note issue.
The benchmark 10-year yield <US10YT=RR>, which moves in the
opposite direction of the price, was unchanged from late on
Wednesday in New York, at 3.66 percent.
Like other developed bond markets, the difference of the
10-year yield over the 2-year yield -- also called the yield
curve -- has been growing sharply over the last month as
dealers anticipated a cut in the Federal Reserve's target rate.
Even after the half-percentage cut by the Federal Reserve
overnight, the curve steepened to 208 basis points, the most
since June 2004.
(Editing by Lincoln Feast)
