Asian stocks rose on Monday, with Japan’s Nikkei at a one-month high, and oil prices climbed towards $53 a barrel on investor hopes a US plan to rid banks of $1 trillion of toxic assets was closer to being implemented.
Global equities have been rallying for nearly two weeks on confidence the financial system was stabilizing after some of the largest US banks said they had solid results in the first two months of the year, feeding confidence among investors to buy back riskier assets and slowly let go of safe havens.
US Treasury Secretary Timothy Geithner was expected to provide details on the public-private partnership to remove bad loans from the banking system later on Monday, though investors were already lifting equities and selling safe havens such as gold.
“The expectation is all these packages will have an impact on the economy, it’s just a question of how quickly,” said RBS Australia strategist Greg Goodsell.
The Nikkei share average rose 2%, with technology shares providing the biggest boost. Japan’s big bank shares were outperformers, with Mizuho Financial Group up 3.3%. Shares of Mitsubishi UFJ Financial Group, the country’s biggest bank, climbed 2.2% after it said it would cut 1,000 jobs.
The MSCI index of Asia Pacific stocks outside Japan was up 1.2%, approaching a fresh one-month high.
Newspaper reports over the weekend provided some details on the US plan, which included an expansion in the use of the Federal Reserve’s term asset-backed securities loan facility as well as the establishment of a private investment fund to handle the risky securities.
Hong Kong’s Hang Seng index rose 3%, led by China Construction Bank’s 5.3% gain. Index heavyweight HSBC actually slipped 3.5% as its deeply discounted rights shares begin trading on Monday.
MORE DETAILS, MORE QUESTIONS
Removing bad loans from the balance sheets of US banks, which have kept financial institutions from lending more, has been viewed by economists as essential before a recovery could begin. The details on Monday took away some of the mystique as to how the US Treasury Department would get that done.
However, questions lingered as to price of the highly illiquid assets, fears about the ballooning federal deficit simmered as the stock market rally persisted and the fate of Wall Street bonuses.
“The government has to do this, but so far, every step the Treasury and the Federal Reserve have taken has been artificial. They are pumping a lot of money into the system, but that is not improving confidence among private bankers,” said Akira Takei, general manager of international fixed income investment at Mizuho Asset Management in Tokyo.
For now at least, investors were given the green light to venture back into riskier assets.
Currencies that were sold off heavily during the most violent periods of market volatility performed well. The Australian dollar rose more than 1% around $0.6980, a two-month high, and sterling strengthened by 0.5% to $1.4500.
The euro hit a five-month high against the yen, near 132 yen, following remarks by European Central Bank President Jean-Claude Trichet underscoring that rates were already at low levels and may turn to unconventional measures to shore up the banking system.
US Treasuries and Japanese government bonds were under fire as stock markets picked up momentum. The yield on the benchmark 10-year Treasury note ticked up to 2.68%, up from around 2.65% late on Friday in New York.
The 10-year yield has retraced about a quarter of the decline suffered after the Federal Reserve last week stunned markets by saying it would buy about $1 trillion of long-term securities from the market, including $300 billion of Treasuries.
US crude futures rose over 1% towards $53 a barrel on Monday, bolstered by expectations that the US Treasury’s efforts to stabilize the ailing financial system would speed up a recovery of the US economy. (Reuters)