* Yen falls on coordinated action to bolster global economy
* Fear remains potent; VIX climbs to record high
* Another Federal Reserve rate cut seen this month
(Updates prices, adds quote)
By Kevin Plumberg
HONG KONG, Oct 9 (Reuters) - Asian stocks rallied 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 emergency rate cuts, hours after equity markets
plunged in Asia and Japan's Nikkei share average 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 <> rose 1.9 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
2.1 percent <.MIAPJ0000PUS>, after it too tumbled 9 percent on
Wednesday, its the biggest single-day fall in at least 20
years.
Hong Kong's Hang Seng index <> rebounded 2.8 percent
after three-days of losses had taken it to the lowest close in
two years. Valuations were the lowest since the Asian financial
crisis about a decade ago.
Australia's benchmark S&P/ASX 200 index <> dropped 1.2
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 S&P 500 index <.SPX> fell for a sixth consecutive day
on Wednesday, as investors decided it was safer to sell despite
the unified move to stop what has become a financial
catastrophe. U.S. stock futures <SPc1> were up 1 percent.
The yen slipped after soaring higher overnight, with
dealers unravelling some safety trades. 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.
"There has a tentative move back into risk taking since the
coordinated rate cuts but of course that's only giving back a
small proportion of the selloff we've seen over recent days,"
said Dwyfor Evans, strategist with State Street Global Markets
in Hong Kong. "This is not a full fledged move back into risk."
MORE ACTION TO COME
The dollar rose 1.6 percent against the yen to 100.70 yen
<JPY=>, rebounding from a six-month low of 98.60 yen hit on
Wednesday.
The euro also recovered against the yen, up 2 percent at
138 yen <EURJPY=R>, after falling to a three-year low of 134.15
yen on Wednesday.
Even after the half-percentage point emergency rate cut by
the Federal Reserve, the futures markets still reflects a 90
percent chance the U.S. benchmark rate will be lowered by a
quarter point by the next policy meeting on Oct. 29.
The global actions to ease monetary policy so far 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 remained under pressure 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 <USD3MFSR=> over overnight index swap
rates <USD3MOIS=> -- 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 in anticipation of new
supply and with investors spooked by a selloff in U.S.
Treasuries. The 10-year JGB future was down 0.9 point to 138.66
<2JGBv1>.
U.S. Treasury debt prices extended losses 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, ticked up to 3.70
percent from 3.66 percent late on Wednesday in New York.
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.
After the Fed rate cut, the curve steepened further on
Wednesday to 208 basis points, the most since June 2004.
(Editing by Lincoln Feast)
