Asian stock markets rose Wednesday as investors welcomed a hefty U.S. interest rate cut and a rally on Wall Street overnight.
Sentiment was also lifted by better-than-expected earnings from major U.S. investment banks Goldman Sachs and Lehman Brothers, easing concerns about fallout from the global credit crisis.
But several markets pared gains in afternoon trading, reflecting investor uncertainty. And analysts warned that the advance doesn't mean the turmoil is over.
"We're just back to where we were at the beginning of the week," said David Cohen, a regional economist with Action Economics in Singapore. "The roller coaster will continue. There's still a lot of uncertainty continuing for the world and U.S. economies."
Japan's benchmark Nikkei 225 index climbed 2.5 percent to close at 12,260.44 after rising more than 3 percent earlier. Hong Kong's Hang Seng index, which rose as much as 3 percent earlier, closed up 2.3 percent at 21,866.94.
Australia's main index jumped 4 percent, and markets in South Korea, China and India also rose.
Interest rates slashed
In a bid to shore up sagging U.S. growth and bring relief to the struggling financial sector, the Federal Reserve on Tuesday slashed its key interest rate by three-quarters of a percentage point to 2.25 percent, its lowest since December 2004.
While many investors were expecting the Fed to cut rates a full percentage point, they quickly overcame some initial disappointment, especially since a 0.75 point cut is still substantial. The Fed began lowering rates exactly six months ago, after the credit markets seized up due to soaring defaults in subprime mortgages.
The Dow Jones industrial average soared 420 points, or 3.51, to 12,392.66 on Tuesday. That was its biggest one-day point gain in more than five years.
Investors were also heartened by better-than-expected earnings from Goldman Sachs Group and Lehman Brothers Holdings, which came out just a day after markets worldwide were shocked by Monday's news that JP Morgan Chase had bought rival investment bank Bear Stearns for $2 per share, or less than $250 million. That sparked concerns about the full extent of the credit crisis.
Asian stocks have been battered this year amid concerns about a recession in the U.S. economy, a major export market. Japan's Nikkei index has tumbled about 20 percent since the start of the year.
In Tokyo, autos, banks and high-tech issues led Wednesday's gains. Nissan Motor Co. rose 5.9 percent, Toyota Motor Corp. climbed 3.9 percent, Toshiba Corp. 3.3 percent and Mitsubishi UFJ Financial Group 5.4 percent.
On the Chinese mainland, the Shanghai Composite index rebounded after five days of losses, climbing 2.5 percent to 3,761.60. A hike in the reserves Chinese banks are required to keep on hand helped quell speculation over further credit tightening by Beijing, boosting investor confidence.
The dollar was trading at 98.18 yen in late afternoon trading, down from 99.65 yen in New York overnight. It had fallen below 96 yen on Monday, a 12 1/2-year low.
Japanese financial markets will be closed Thursday for a national holiday.