Pat Dollard | Young Americans

TOKYO (AP) - Most Asian markets rebounded strongly Wednesday, reversing their recent gut-wrenching plunge as investors welcomed a hefty, surprise interest rate cut by the U.S. Federal Reserve to shore up the sagging American economy.

“The Fed’s action provided a very positive surprise,” said Tsuyoshi Segawa, strategist at Shinko Securities Co. in Tokyo. “But people are also starting to think that things may be so bad they needed to act.”

Japan’s Nikkei 225 index jumped 3.4 percent in the morning session, recouping some of its 9.3 percent loss the last two days. Australia’s benchmark index rebounded 5.1 percent, snapping a 12-day losing streak.

In Hong Kong, the Hang Seng index—which had plummeted 13.6 percent Monday and Tuesday—surged 7.5 percent at the opening before trimming gains to 22,945.13, up 5.5 percent, in late morning trading.

Times Online:

A trickle of bargain hunters pushed shares modestly higher in London today as dealers held their nerve after the two-day rollercoaster ride in equity markets.

The FTSE 100 index of blue-chip stocks was marked 104 points higher in the first minutes of trading, but the confident start fizzled out and it was later trading at 5,784, up 44 points.

Strong market performances in Asia helped to settle traders’ nerves, but the dramatic slashing of US interest rates yesterday continued to divide opinion.

The belief that the biggest single loosening of US monetary policy in a quarter of a century should be enough to avert recession was balanced by more negative opinion that it was a panic measure and evidence of how concerned about financial markets central bankers must be.

European bourses also made gains. The FTSEurofirst 300 index of top European shares was up 1 per cent, the German DAX climbed 1.2 per cent and the French CAC 40 was up 1.3 per cent.

Morgan Stanley said that the 20 per cent drop in European share prices from the peak reached in June 2007 looked like enough of a correction, for now.

Investors hoping for cuts in UK interest rates will be scouring the minutes of the most recent Bank of England rate-setting meeting, due later today, for clues.

Mervyn King, the Bank Governor, said last night that he was “hamstrung” because soaring food and energy prices were exerting inflationary pressures. However most analysts expect a cut early next month.

The Hang Seng index in Hong Kong, which opened the day with a 7 per cent leap, was trading 5 per cent higher by late afternoon, and in Tokyo the Nikkei closed 2 per cent higher at 12,829.06 after a day of volatile trading.

Impressive morning surges in Tokyo, Hong Kong and Bombay, where the stock exchange was trading 3.38 per cent up at 17,296.19 points, were replaced by more reserved buying in the afternoon as investors acknowledged that the US Federal Reserve’s cut may not by itself be enough to defend markets against a grim economic storm in America.

Yesterday, after the Fed’s three-quarter-point rate cut to 3.5 per cent, the FTSE 100 finished 162 points higher at 5,740.1. The Dow Jones industrial average in the US recovered from steep losses of nearly 430 points on opening, but still closed 128 points lower at 11,971.20.

Despite the pan-Asian stock rallies, there is a fear that economies there can no longer expect to survive a US downturn unharmed.

“Many investors still believe that the credit crisis is purely a ‘US sub-prime problem’,” Richard Bernstein, the chief Merrill Lynch investment strategist, wrote in a note to investors today. “Nothing could be farther from the truth.”

Some brokers dismissed the rebounds as barely more than a “technical bounce”, with little in the way of true optimism at its core.