Asian Shares Soar on Fed Stimulus Measures
09/13/2012| 09:56pm US/Eastern
Asian markets soared on Friday after the U.S. Federal Reserve unveiled an open-ended bond buying plan Thursday to help the domestic economy, while the Bank of Japan gave further signals that it is concerned over the strength of the yen.
South Korea's Kospi Composite hit the 2,000 level for the first time in nearly five months and Hong Kong's Hang Seng Index was trading at its highest level since early May. Regional currencies, gold and oil also continued to climb in Asian trading in response to the bond-buying plan.
The Fed announced that it will purchase $40 billion worth of mortgage-backed securities a month, while at the same time extending Operation Twist, a stimulus effort to keep interest rates down by selling short-term bonds and using the proceeds to buy long-term bond bonds.
The central bank's policy setting committee also said that it could do more to help the economy if the labor market fails to improve.
"There is no doubt that this is an extremely significant point. The open-ended nature of the plan is just extraordinary," said James White, senior analyst at First State Investments in Sydney, which has $148.8 billion worth of assets under management.
The Federal Reserve's plan is the latest risk event to cheer markets -- following last week's bond-buying plan by the European Central Bank and the subsequent ruling over the legality of the European Stability Mechanism by the German Constitutional Court this week.
"Right now there in nothing on the immediate horizon that could stop the great rise that equity markets have had recently," said Joe Bracken, head of macro strategies at BT Investment Management in Sydney, which manages $44.3 billion Australian dollars (US$45.1 billion) worth of assets as of the end of June.
The dollar was at Y77.62 Friday, after falling to a seven-month low of Y77.13 against the yen Thursday.
Japan's Finance Minister Jun Azumi said at a press conference on Friday that he would not rule out any policy options to fight excessive moves in the yen.
In addition, traders say that the central bank carried out a rate check with several banks during New York trading hours, the first since early June. After checking the yen exchange rate with several banks, the central bank could immediately follow with actual intervention, making it one of the strongest signals it can send.
The euro continued to strengthen against the greenback hitting a four-month high above $1.3000 during Asian trading Friday, after rising 0.7% against the greenback Thursday. It was last at $1.3028.
The Australian dollar was at US$1.0578, compared to US$1.0470 late Thursday in Sydney, while the dollar dropped to 1,118.85 won, from 1,128.00 won late Thursday in Seoul.
Japan's Nikkei added 2% despite the strong yen, as growth-sensitive sectors -- such as steelmakers, shippers and trading companies -- outperformed. Steel company JFE Holdings rose 6.2%, trading company Mitsui & Co climbed 3.6%, and shipping company Nippon Yusen was 4.3% higher.
South Korea's Kospi leapt 2.9%, with financial companies leading gains: KB Financial Group added 2.8% and Woori Finance Holdings was 4.5% higher.
Australia's S&P/ASX 200 added 1.4%, as mining stocks reacted best to the U.S. stimulus measures: Rio Tinto advanced 2.7% and BHP Billiton rose 1.6%.
Hong Kong's Hang Seng Index was up 2.7% as commodity stocks led the gains, while the Shanghai Composite Index rose 0.5% in China.
Gold added $3.70 to $1,775.60 an ounce and the price of oil increased by 0.8% to hit $99.06 dollars a barrel.
In corporate news, Fortescue Metals Group called a trading halt after slumping 14% on Thursday, as the miner is in talks with lenders over debt restructuring. The company has experienced volatile trading in recent sessions, following the violent moves in the price of iron ore, its core asset; the shares have fallen 33.3% over the last month.
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