Only a day after a hefty rate cut by the Federal Reserve propelled the market to its best gain in nearly six years, the Dow Jones Industrial Average slumped 293.81 points (2.38 percent) to 12,097.71 at the closing bell.
Asian stocks surged on Wednesday as big interest rate cuts in the United States and surprisingly resilient results from two top Wall Street banks sent exporters higher and revived moribund financial shares.
Major European stock indexes were also set to gain, with bookmakers predicting advances of between 0.7 and 1.3 percent.
The dollar fell in seesaw trade, a day after posting its biggest one-day gain against the yen in a decade, though remaining well above recent lows hit against other currencies such as the euro -- bringing more relief to Asian exporters.
The stock rally dimmed the safe-haven appeal of gold and bonds, while oil retreated from Tuesday's jump on expectations
for a fall in U.S. inventory data due later in the day.
Still, analysts warned against over-reacting to what has been a volatile week, with Asian stocks just on Tuesday hitting their lowest since August amid investor fears of the impact of the financial crisis on the global economy.
"The problem in the U.S. is that the banks don't have enough capital to lend and we're not really that sure whether the Fed action will fix that," said Damien Boey, equity strategist at Credit Suisse in Australia.
"What's actually needed is for the Fed to buy up those toxic or defunct assets that are going around. So at this stage, we're very sceptical about this bounce."
The MSCI's measure of Asian stocks outside Japan rose 3.3 percent as of 0608 GMT in a welcome bounce for an index that is down some 20 percent this year.
Japan's Nikkei rose 2.5 percent, coming back after hitting its lowest since August 2005 on Monday, while shares in Australia jumped 4 percent.
Shares in South Korea, Hong Kong and India rose more than 2 percent each, while markets in Taiwan and Singapore advanced more than 1 percent.
Shanghai's benchmark index gained 1.4 percent fuelled by rumours that the government would take steps to boost the market, perhaps by cutting the stock stamp duty.
Exporters such as South Korean chip maker Samsung Electronics were among the leading gainers on hopes the U.S. rate cuts will reduce the pain from a U.S. economy that many believe to be either in the brink of recession or already in one.
The sector is facing a double threat to their earnings: a potential slowdown in consumption in their top export market and the threat of surging local currencies, which eats into profits earned abroad and makes them less competitive.
Shares in financial firms such as HSBC and Japan's Mitsubishi UFJ Financial Group also surged.
Though regional banks have been spared the extent of write-downs seen at European and U.S. counterparts their shares have still suffered from the spreading credit crisis.
IMPASSE AT THE BOJ
The Federal Reserve slashed U.S. interest rates on Tuesday by a hefty three-quarters of a percentage point. The cut,
though less than many traders had expected, comes on the heels of emergency measures over the weekend to ease a liquidity crisis in credit markets.
The Fed has now cut rates by an aggressive 3 percentage points since mid-September, including 2 points this year.
Investors had already reacted with jubilation before the Fed's move after Goldman Sachs and Lehman Brothers had topped earnings forecasts, although their quarterly profit had more than halved.
The news was well received by investors who had fretted about more casualties from the credit crisis following the fire sale of Bear Stearns to JPMorgan Chase on Sunday.
The Fed's aggressive easing contrasts with central banks in the region that are enmeshed in a fight against inflation, with China ordering banks on Tuesday to hold more of their deposits in reserves instead of lending them out.
In Japan, the search for a new central bank governor continued after the country's upper house of parliament for a
second time voted down the government's nominee for the position.
Bank of Japan Governor Toshihiko Fukui is set to retire later at midnight (1500 GMT).
The dollar gained and waned, following a rally on Tuesday when traders had reacted to the Fed's smaller-than-expected cut in U.S. rates by sending the greenback to its biggest one-day gain against the yen in nine years.
The dollar climbed as far as 100.45 yen before falling to around 98.80, down 1.2 percent from late U.S. trading.
Some of the willingness to take riskier bets returned, with gold down more than 2 percent. It last traded at $990.90, down from a record $1,033.90 on Monday.
Oil prices, which had surged 3.5 percent on Tuesday, retreated on expectations U.S. government data will show rising crude and gasoline inventories in the United States. U.S. crude for April delivery fell $1.08 to $108.34 a barrel.
Date created : 2008-03-19