World Markets Bolstered By Fed Rate Cut

Asian and European stock markets rallied Wednesday, continuing a surge that began on Wall Street after the U.S. Federal Reserve announced a larger-than-expected interest rate cut.

Tuesday, the Dow Jones industrial average gained 335.97 points, or 2.51 percent, to 13,739.39 - its biggest one-day point jump in nearly five years.

Wednesday, Japan's Nikkei 225 stock index soared 579.74 points, or 3.7 percent, to close at 16,381.54 points, marking its biggest point gain in more than five years. Hong Kong's Hang Seng index jumped 977.79 points, or 3.98 percent, to 25,554.64.

Investors cheered the Fed's decision to cut its benchmark interest rate by a half percentage point to 4.75 percent, a move aimed at keeping problems in the mortgage market from causing a recession in the U.S. economy - a key export market for many Asian and European companies.

"They did the right thing," Joseph Han, a strategist at Daewoo Securities Co. in Seoul, said of the Fed's aggressive cut. Many analysts predicted a quarter-point reduction in the fed funds rate.

Kaoru Yosano, Japan's chief government spokesman, also welcomed the Fed's decision.

"They have reacted very quickly to the realities," he told reporters.

Stock markets in South Korea, India, Australia and Singapore also advanced, although Chinese shares faltered.

In morning trading in Europe, the U.K. benchmark FTSE 100 rose 2.3 percent to 6,426.10. Germany's Dax gained 1.7 percent to 7,707.35 and France's CAC-40 climbed 2.3 percent to 5,677.12.

Asian Development Bank President Haruhiko Kuroda said the U.S. rate cut will benefit Asia's emerging economies.

"It will definitely sustain the strong economic growth in the U.S., which is beneficial to emerging economies in Asia," he said in Manila at a news conference at a forum sponsored by the World Trade Organization.

After the Fed's move, the Hong Kong Monetary Authority cut its benchmark base interest rate half a percentage point to 6.25 percent. Hong Kong's currency is pegged to the U.S. dollar, and the HKMA usually follows in lockstep any U.S. interest rate adjustments.

Later Wednesday, the Bank of Japan decided to leave its key interest rate unchanged at 0.5 percent, as widely expected.

The world's central banks like to show they are working together to maintain global stability, and the Bank of Japan would find it hard to raise rates at a time the U.S. central bank is cutting them.

Also, there are persistent signs of deflation in Japan's economy. And last week the government said the economy contracted in the April-June quarter at an annual rate of 1.2 percent, reversing its initial estimate for a 0.5 percent growth.

Oil prices rose as well Wednesday as the rate cut lifted expectations growth will accelerate and increase demand for already tight crude and gasoline supplies.

Light, sweet crude for October delivery added 66 cents to $82.17 a barrel in Asian electronic trading on the New York Mercantile Exchange. Overnight oil futures hit an all-time high of $82.38 a barrel after closing the New York floor session at $81.51.

But higher oil prices could spur inflation just as the Fed is cutting rates, warned Jose Vistan, research head at AB Capital Securities in Manila.

"The Fed decision could backfire because we are in the midst of rising commodity prices, particularly energy, oil prices rising to record levels," he said.

For now, investors are relieved that the Fed acted to ease pressure in credit markets.

Around the region, the Korea Composite Stock Price Index rose 64.04 points, or 3.5 percent, to close at 1,902.65, its highest level since Aug. 9. In India, the benchmark Sensex index of the Bombay Stock Exchange broke through the 16,000 mark for the first time.

But in China, the benchmark Shanghai Composite Index declined 29.94 points, or 0.6 percent, to 5,395.27, dragged down by selling of bank stocks. China's financial markets tend to move independently of the rest of the world because foreigners are barred from investing in many stocks.

Despite the slip, the Shanghai index is still up more than 100 percent this year.