NY Times Headlines

HONG KONG, Sept. 19 — Asian stock markets rose sharply today and European markets were off to a strong start this morning following a powerful rise in the American markets Tuesday after the Federal Reserve announced a surprisingly large half a percentage point cut in interest rates.

 

And U.S. stocks looked poised today to add to the previous session’s rally, the biggest in four years.Leading Asian share indexes were pushed to their highest levels in more than a month, with the Hang Seng Index in Hong Kong rising 4 per cent to a record close of 25,554.64.

In Europe, the FTSE 100 gained 2 per cent to 6,404.4 in morning trading, while the Xetra Dax rose 1.7 per cent to 7,705.34 and the CAC-40 added 1.9 per cent to 5,656.19. Commodity stocks also surged, thanks to higher metal and oil prices.

Particularly strong were banking shares, which were recently battered on worries about their exposure to a crisis in the U.S. subprime or risky mortgages market. Shares in British home builders rose sharply as well, with Persimmon up 5.7 percent and Barratt Developments gaining 5.4 percent.

In Asia, the rate cut is seen as particularly benefiting exporters of cars and electronic goods that rely heavily on the United States market. Toyota Motor Corporation had its biggest gain in more than three years on the Tokyo Stock Exchange, adding 4.9 percent.

In Seoul, Samsung Electronics and Hyundai Motor Company, both heavily reliant on the U.S. market were up 1.9 per cent and 4.6 percent respectively, leading a surge in the share prices for exporters.

But the enthusiasm to cash in the American rate cut was tempered by a discomforting message implicit in the decision to drop the benchmark interest rate to 4.75 percent.

“I don’t think anyone can feel comfortable that all is well,” said Edmund Harriss, the investment director with Guinness Atkinson Investment Managers, which has $370 million in assets in three Asia-focused funds. On one hand, the move signifies that the Fed is “prepared to act as needed,” Mr. Harriss said, but on the other, the United States economy may be “looking weaker than we thought.”

Whether the old adage about the U.S. economy sneezing and the rest of the world catching a cold holds true is a question on the minds of many economists and business executives in Asia as they watch the fallout from the crisis in the U.S. over defaults on home loans to poor grade borrowers, the so-called sub-prime mortgage problem.

The aggressive rate cut by the Federal Reserve has signaled to many economists the depth of concern over a U.S. recession brought on by a credit squeeze and declining consumer consumption.

But what impact will that have on Asia? Just two days before the Federal Reserve’s announcement, the Manila-based Asian Development Bank issued its annual economic outlook report for Asia, forecasting average growth in the region of 8.3 percent for 2007. This upgraded its earlier estimate of 7.6 percent. Growth for 2008 was forecast to be 8.2 percent.

One of the bank’s key messages was that Asia is well placed to manage any U.S. slowdown, although the comment came with the caveat that the outlook for the region in 2008 is “hazy” because of uncertainty in global financial markets and the health of the world’s biggest economy.

“Developing Asia’s defenses against external shocks are solid and it can weather a slowdown in the United States,” the bank said. “The region’s growth prospects will continue to depend on how well the countries address their internal challenges.”

At a conference in Manila today, Haruhiko Kuroda, the president of the bank, said the U.S . rate cut would help stabilize financial markets and give a timely boost to the U.S. economy.

“It would definitely improve the prospect of sustained strong economic growth in the United States, which could be also very beneficial particularly for emerging economies in Asia,” Kuroda said. “So, I would say that the decision would be greatly appreciated by many economies, financial sectors in the region.”

The bank’s outlook report pointed to research by the International Monetary Fund that growth in countries of developing Asia declined by 0.28 percent for every percentage point fall in U.S. growth in the five U.S. recessions from 1974 to 2001.

Even oil priced at about $82 a barrel is yet to shake confidence in the region’s ability to maintain the fastest growth rates in the world, although it will increase the budget cost of direct and indirect subsidies for consumers.

Published originally by the NY Times

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