Asian markets rally after European bank decision

A decision by European central banks to support the region's financial system helped calm Asian markets, setting off a rally across the region in Friday trading.

The focus is now shifting to talks in Poland between U.S. Treasury Secretary Timothy Geithner and his European counterparts, which run through Saturday, about coordinating efforts to prevent Europe's debt crisis from derailing a global recovery.

Japan's Nikkei 225 index rose 2.3 percent to close at 8,864.16 in afternoon trading. That was the highest close for the benchmark since Sept. 2 and the biggest percentage and point gains for a day in around six months, according to Kyodo news agency.

Other Asian markets also surged. South Korea's Kospi advanced 3.7 percent to 1,840.10. Hong Kong's Hang Seng gained 1.8 percent to 19,521.63.

Kazuyuki Kawabe, a strategist at Nomura Securities Co. in Tokyo, said the Nikkei's rise reflected the move by European investors who were calmed by the latest developments that make it less likely that Greece's debt problems will spill over to Spain, Italy or other European nations.

"There is more optimism about Greece," he said.

The news also set off a rally in U.S. stocks overnight, with the Dow Jones industrial average rising 1.7 percent to close at 11,433.18. The Standard & Poor's 500 index climbed 1.7 percent to 1,209.11.

But analysts said the rebound was likely temporary as debt woes had not been fixed.

"On a longer term basis, you still have significant issues with too much debt, too much debt in the European area, too much debt in the U.S. as well," said Samuel Le Cornu, portfolio manager at Macquarie Funds Group in Hong Kong.

"The markets rally today I think is very short term in nature, but it does underpin the thematic at the moment and that is uncertainty and volatility as a function of uncertainty," he said.

Worries about European banks' borrowing problems, a key element in the region's debt crisis, have been hanging over global markets in recent weeks, especially about the cash-strapped governments in Greece and Italy.

But the European Central Bank, the U.S. Federal Reserve and three other central banks said Thursday they would provide European banks with unlimited dollar loans.

In currencies, the dollar strengthened to 76.77 yen from 76.64 yen late in New York on Thursday. The euro fell to $1.3874 from $1.3889.

Benchmark oil for October delivery was up 20 cents at $89.61 per barrel in electronic trading on the New York Mercantile Exchange. The contract added 49 cents to finish Thursday at $89.40 per barrel.

In London, Brent crude for October delivery was up 48 cents at $112.78 on the ICE Futures exchange.