By William L. Watts, MarketWatch
Last update: 6:11 a.m. EST Nov. 10, 2008
LONDON (MarketWatch) -- China's unveiling of a massive economic stimulus program topping half of a trillion dollars revived risk appetite Monday, lifting Asian and European equities while undercutting the Japanese yen and U.S. dollar.
The Chinese government outlined a plan to spend around $586 billion over the next two years. Read about the stimulus plan.
The effort "helped to spur some buying in Asian stocks overnight and could well form the starting point of a coordinated fiscal stimulus plan as world leaders gather in Washington later this week," wrote strategists at Lloyds TSB.
Most Asian stock markets soared Monday, with Hong Kong and Shanghai posting across-the-board gains. See Asia Markets.
European shares also pushed higher, with the Chinese news lifting commodity producers. See Europe Markets.
The dollar index , a measure of the greenback against a trade-weighted basket of six currencies, fell to 85.372 from 86.280 in late North American trading on Friday.
The euro rose to $1.2864from $1.2712. The British pound gained ground to trade at $1.5736 from $1.5646.
The dollar rose to 99.25 yen, up from 98.17 yen late Friday. The euro jumped 2.2% against the Japanese unit to 127.73 yen.
The yen and, to a lesser degree, the dollar have served as barometers of risk aversion in global financial markets. De-leveraging and liquidation in the face of financial turmoil sharply boosted both currencies in October.
Bouts of renewed but modest risk appetite have left them somewhat under pressure since the start of November.
Strategists said fears that further rounds of de-leveraging have yet to play out continue to limit enthusiasm for selling the yen or dollar.
The lack of a rebound by London stocks following last week's unexpected 1.5 percentage-point cut in the Bank of England's key interest rate to 3% shows markets see limited prospects for immediately halting a sharp decline in the global market, wrote Neil Mellor, currency strategist at Bank of New York Mellon.
Still, markets may continue to bask in the glow of the Chinese move, which could prove to be a defining moment in the crisis, he said.
"But even if this optimistic scenario ultimately proves to be correct, the inevitable and continued deterioration in global economic data may prove to be a rather overwhelming test of the market's mettle in the meantime," Mellor said.
