RTRS: Asia shares gain on Citi rescue but risks remain
By Rafael Nam
HONG KONG (Reuters) - Asian shares rose on Tuesday and so-called safe haven assets such as bonds fell after the U.S. government rescued banking giant Citigroup to prevent further damage to the ailing global financial system.
The yen recovered from sharp falls a day earlier and gained against major currencies, but some traders said the Japanese currency could stall in the near term if investors continued to return to battered equity markets and other riskier assets.
Oil prices retreated below $54 after surging more than 9 percent in the previous session, a rally that was big enough to send regional commodity-related stocks such as BHP Billiton sharply higher.
But shares gave up some of their early gains as plenty of near-term risks remained, including whether other global lenders are in need of rescue, the fate of U.S. auto makers and
indicators that continue to signal a rough road ahead for the global economy.
"It will take a long time to bring the financial system back to health, as it happened in Japan, and it's hard to believe market sentiment will turn around quickly," said Hideki Amikura, deputy general manager of the forex section at Nomura Trust Bank.
Japan suffered a "lost decade" in the 1990s after a real estate bubble burst, sparking a banking crisis and economic stagnation marked by deflation.
The MSCI index of Asia-Pacific stocks excluding Japan rose 2.9 percent as of 0400 GMT (11 p.m. on Monday night), heading toward a third consecutive daily gain, but off earlier gains of as much as 4.3 percent.
Japan's Nikkei average jumped nearly 3 percent, resuming trade after a public holiday on Monday.
The broader market rally comes after an initially tepid Asian reaction to the U.S. plan, announced early on Monday Asian time, to shoulder most potential losses on about $306 billion of Citigroup's risky assets and inject capital into the struggling lender.
But a subsequent Wall Street rally, which capped the best two-day run since the aftermath of the 1987 stock market crash, put some of those doubts to rest, sparking optimism the U.S. government could similarly step in to support other big banks.
The rally in global markets was also helped after U.S. President-elect Barack Obama promised to jolt the faltering U.S. economy with a stimulus package, raising the outlook for beleaguered exporters worldwide who depend heavily on U.S. consumer demand.
Shares in Australia and Hong Kong rallied more than 3 percent each, while markets in Taiwan and Singapore rose over 2 percent.
South Korea's KOSPI index was up about 2 percent, with Shanghai's index up only 0.1 percent.
Gains in Asia were led in part by banking shares such as South Korea's KB Financial Group and Commonwealth Bank of Australia, which recovered from steep falls on Monday.
REDISCOVERING RISK?
Investors went from buying assets perceived as safe havens during the uncertainty in the lead-up to Citigroup's rescue to shunning them on Tuesday. The question is how long it will last.
Data continues to confirm the weakness of the global economy. South Korea on Tuesday said consumer confidence slumped to a four-month low in November, while in Germany, corporate sentiment plunged to its lowest level in nearly 16 years this month.
"The overall weakness in the economy has been limiting gains," said Y.K. Chan, a strategist with Phillip Capital Management in Hong Kong.
"The market could still fall below its October low in the absence of new stimulus measures from the U.S. and China."
Still, regional bonds largely fell.
December 10-year Japanese government bonds (JGB) futures dropped by as much as 0.54 point before recovering to be down T0.17 point from the previous close at 139.13.
The benchmark 10-year JGB yield rose 3.0 basis points to 1.420 percent, pulling up from a six-week low of 1.375 percent hit on Friday.
The yen rose against major currencies though some traders attributed that to adjustments after the currency fell around 5 percent on Monday.
The euro was down 1.2 percent against the yen at 124.50 yen after the single currency rose on Monday from a low around 119.60 yen to a high above 126 yen.
The dollar was down 0.6 percent at 96.76 yen, but above Monday's low near 95 yen.
Oil prices retreated 88 cents to $53.60 a barrel after surging more than 9 percent on Monday when OPEC President Chakib Khelil said a further cut in crude output would be necessary. Oil had tumbled to a 3- year low on Friday.
The oil cartel meets on Saturday in Cairo for informal talks, though a cut is not expected to be announced until the next full policy meeting in December.
Gold fell $9.5 to $810.05 on Tuesday on profit-taking after bullion surged to their highest in almost six weeks on Monday amid the initial cautious reaction to the Citigroup rescue.
(Additional reporting by Chikako Mogi in TOKYO, Parvathy Ullatil in HONG KONG)
