Business

Asian stocks rebound after US Fed puts rates on hold

  • 10 August 2011
  • From the section Business

Asian markets have rebounded after the US Federal Reserve said it would keep interest rates on hold and Wall Street had its best day in two years.

The decision by the US central bank to keep rates at current levels until at least 2013 helped stem one of the biggest sell-offs in recent years.

Japan's Nikkei 225 index rose 1%, Hong Kong's Hang Seng gained 2.7% but South Korea's Kospi rose just 0.3%.

Analysts say markets will remain choppy amid global growth fears.

They said that many investors were still concerned about global growth and the fact that the Fed did not announce any new measures to boost expansion, such as an economic stimulus package.

"A lot of traders will be disappointed that the Fed did not go any further," Robin Bew of the Economist Intelligence Group told the BBC's Asia Business Report.

Long-term worry

One of the key reasons behind the massive sell-off over the past few days has been the fear that the US, the world's biggest economy may be falling into recession.

In tandem with its rates decision on Tuesday, the Fed also warned that US growth this year had been "considerably slower" than it had expected.

Kelvin Tay of UBS Bank told the BBC that markets had only reacted to the positive side of the Fed's announcement; the fact that rates would stay on hold.

"Markets were oversold and they were looking for a reason to rebound," he explained. "When the dust settles, people are going to focus on economic issues again."

"Consumption in the US is going to be impacted and that is bad news for the export-dependent economies of Asia."

Structural issues

The fears about the state of the global economy were fanned last week by Standard & Poor's decision to cut the US's credit rating from triple A to AA+ for the first time.

On top of this, the ongoing debt issues in Europe have prompted many analysts to revisit their own estimates for both economic and corporate profit growth.

"The immediate nervousness triggered by the downgrade... that is dissipating," said Mr Bew of the Economist Intelligence Group.

"But long-term worry, that the US and Europe have some serious issues and really don't seem to have a policy answer to them, still remains," he added.

This view was echoed by Hans Goetti of Finaport Investment Intelligence.

"The US is most likely going into a recession and we are likely to see a downgrade in corporate profits," Mr Goetti said.

"The markets usually react to earnings downgrades, so this rally could be short-lived."

Broader gains

Despite the concerns, trading on Wednesday provided markets with a respite from the recent selling spree.

Australia's ASX index rose 2.6%, Shanghai's Composite Index was up 0.9%.

In India, the Sensex gained 1.6%.

The gains came after markets in Europe and the US gained on Tuesday. The UK's FTSE 100 index ended up 1.9%, while France's Cac added 1.6%. The main US share index, the Dow Jones, closed up 4%.

"It's possible the bottom has been met but it is too early to say so," said Albert Hung of Alleron Investment Management.

"You never know what more bad news may be coming around the corner."