Asia stocks extend gains on proposed US bailout

The Associated Press , Hong Kong | Mon, 09/22/2008 12:38 PM | Business

Asian markets extended gains Monday after the U.S. government proposed a US$700 billion plan to solve the world financial crisis by rescuing banks from billions of dollars in risky mortgage debt.

In Japan, the Nikkei 225 index was 2 percent higher at 12,157.64 points by midday, while Hong Kong's Hang Seng index added 1.4 percent.

Australia's S&P/ASX 200 index jumped 4.3 percent, buoyed by new rules banning all short selling following similar actions by regulators in the U.S. and Britain.

Global markets had rallied Friday on news Washington was likely to announce a bailout plan, calming investors worried that losses from bad bets on mortgages could bring about the collapse of more companies, straining an already weakened financial system and global economy.

As details of the plan took shape over the weekend, the Bush administration continued to lobby lawmakers Sunday for authority to use US$700 billion to buy up a mountain of bad debt at the heart of the crisis.

While the proposed bailout lifted sentiment for the time being, there were still a number of uncertainties about the plan and the general health of financial firms that could further unsettle markets in the coming days, an analyst said.

"This should stem the bleeding, but the patient is still very fragile," said Thomas Lam, a senior economist at the United Overseas Bank in Singapore. "The list of uncertainties is pretty long."

Asian financial stocks, battered in recent weeks, were among the leaders.

Japanese banking giant Mitsubishi UFJ Financial Group Inc. climbed more than 5 percent, while leading Australian firm Macquarie Group Ltd. surged 8.5 percent. In Hong Kong, Industrial & Commercial Bank of China, the country's biggest, was up 2.5 percent.

In mainland China, the Shanghai Composite Index was up 6.4 percent by midday, lifted by strong buying of financial shares after the government announced plans to buy shares in major state-owned banks and other measures.

After watching share prices slide for almost a year, the government moved to support the stock market last week in response to the global financial crisis triggered by the bad debt crisis in the U.S.

Comments by Premier Wen Jiabao over the weekend urging support for the financial system and market stability also boosted buying sentiment, analysts said.

"According to our analysis, this could be a turning point for the market, not just a brief rebound," said Zhang Xiuqi, a strategist for Guotai Junan Securities in Shanghai. "Market sentiment is finally recovering."

Several major banks jumped by the 10 percent daily limit, including ICBC, Bank of China and Construction Bank of China.

The advances came after an another extraordinary rally on Wall Street on Friday. The Dow Jones industrials soared about70 points, or 3.35 percent, to 11,388.44, giving the index a gain of about 780 points over two days.

U.S. stock index futures were down, though, suggesting Wall Street may open lower. The S&P 500 futures index was down 10.8 points, or 0.9 percent, to 1,235.2.

Light, sweet crude was up 45 cents at US$5.00 a barrel in Asian trading on the New York Mercantile Exchange. The contract soared $6.67 Friday.

In currencies, the dollar fell to 106.51 yen, while the euro rose to $1.4519.

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