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Asian, European stocks rally after Fed's rate cut

European and Asian stock markets rallied Wednesday in the wake of Wall Street’s surge spurred by the U.S. Federal Reserve’s larger-than-expected interest rate cut.
/ Source: The Associated Press

European and Asian stock markets rallied Wednesday in the wake of Wall Street’s surge spurred by the U.S. Federal Reserve’s larger-than-expected interest rate cut.

Key market indicators in Britain, France and Germany each rose more than 2 percent after even bigger gains in Japan and Hong Kong.

Investors cheered the Fed’s decision on Tuesday to cut its benchmark interest rate by a half percentage point to 4.75 percent, a move aimed at keeping problems in the mortgage market from causing a recession in the U.S. economy — a key export market for many Asian and European companies.

“They did the right thing,” Joseph Han, a strategist at Daewoo Securities Co. in Seoul, said of the Fed’s aggressive cut. Many analysts expected a quarter-point reduction in the fed funds rate.

After Tuesday’s rate cut, the Dow Jones industrial average posted its biggest one-day point gain in nearly five years — a surge of 335.97 points. In midmorning trading Wednesday, the index gained another 89.58 points to 13,828.97.

In afternoon trading in Europe, Britain’s benchmark FTSE 100 rose 2.7 percent to 6,453.70. Germany’s Dax gained 2.1 percent to 7,737.27 and France’s CAC-40 climbed 2.9 percent to 5,707.37.

Earlier in Asia, Japan’s benchmark Nikkei 225 stock index soared 579.74 points, or 3.7 percent, to close at 16,381.54 points, marking its biggest point gain in more than five years. Hong Kong’s Hang Seng index jumped 977.79 points, or 3.98 percent, to 25,554.64.

Shares in India hit an all-time high, as the Bombay Stock Exchange’s 30-share Sensex surged 654 points, or 4.2 percent, to 16,323.

Stock markets in South Korea, Australia and Singapore also advanced, although Chinese shares faltered.

Kaoru Yosano, Japan’s chief government spokesman, welcomed the Fed’s decision.

“They have reacted very quickly to the realities,” he told reporters.

On Wednesday, the Bank of Japan decided to leave its key interest rate unchanged at 0.5 percent, as widely expected.

The world’s central banks like to show they are working together to maintain global stability, and the Bank of Japan would find it hard to raise rates at a time the U.S. central bank is cutting them.

Asian Development Bank President Haruhiko Kuroda said the U.S. rate cut will benefit Asia’s emerging economies.

“It will definitely sustain the strong economic growth in the U.S., which is beneficial to emerging economies in Asia,” he said in Manila at a news conference at a forum sponsored by the World Trade Organization.

Oil prices rose as well Wednesday as the rate cut lifted expectations growth will accelerate and increase demand for already tight crude and gasoline supplies.

Light, sweet crude for October delivery rose 64 cents to $82.15 a barrel on the New York Mercantile Exchange after hitting a new trading high of $82.51 earlier.

But higher oil prices could spur inflation just as the Fed is cutting rates, warned Jose Vistan, research head at AB Capital Securities in Manila.

“The Fed decision could backfire because we are in the midst of rising commodity prices, particularly energy, oil prices rising to record levels,” he said.

For now, investors are relieved that the Fed acted to ease pressure in credit markets.