UNITED STATES - WALL STREET

Stocks rally on rate cut hopes

Thursday, November 29, 2007

US and Asian stocks soared after the Vice Chairman of the Federal Reserve suggested the Fed is open to another rate cut. Coupled with Tuesday's increase, the gain signals the U.S. markets' biggest two-day rally in five years.

Asian stocks rallied while the low-yielding yen and bonds struggled on            Thursday after comments from a top Federal Reserve official increased
expectations of interest rate cuts to support the U.S. economy.
 

The positive mood was set to extend to Europe, with
financial bookmakers expecting shares to extend Wednesday's
sharp gains.
 

Commodity prices rose, led by oil which jumped more than $1
on news of a pipeline fire disrupting Canadian supplies to the
United States. U.S. crude traded near $92 a barrel, up from
Wednesday's two-week low of $90.33.
 

Gold which serves as a hedge against inflation and often
tracks oil prices, also recovered some ground to trade above
$806 an ounce.
 

Federal Reserve Vice Chairman Donald Kohn signalled a
willingness to lower borrowing costs, saying financial market
turmoil could slow the U.S. economy and the Fed had to be
flexible.
 

His comments, which came just a day after two other Fed
officials hinted they would not support a rate cut at the next
policy meeting on Dec. 11, sent Wall Street stocks soaring. The
Dow Jones industrial average jumped 2.6 percent, its biggest
percentage gain in 4-½   years.
 

Asian markets followed suit with Tokyo's Nikkei average
closing up 2.4 percent at a two-week high and the MSCI's
measure of other Asia Pacific stocks climbing 3 percent by 0630
GMT.
 

The MSCI index is still some 10 percent off its Nov. 1
record high, but is up a third this year, triple the 10 percent
gain for MSCI's key world stock index
 

"Markets are jumping on relief there might be a rate cut at
the moment," said Neale Goldston-Morris, head of equity
strategy at Macquarie Equities in Sydney. "But there is still a
lot of pain to go through."
 

"Until credit markets restore normality, it's hard to see
equity markets making any consistent headway."
 

Indicating a tentative revival in risk appetite, yield
spreads between emerging market debt and U.S. Treasury notes --
a gauge of risk aversion -- tightened a further 4 basis points
after crunching in 15 ticks overnight.
 

Safe-haven Japanese and U.S. government bonds dipped,
sending yields higher. Japanese 10-year bond futures were down
0.14 point, moving further away from last week's 22-month high.
 

BANKS SHINE
 

Bank stocks, recently pounded by worries about billions of
dollars being written off in credit losses, led the rebound
with Japan's Mitsubishi UFJ rising 6.1 percent and Citigroup
jumping nearly 8 percent in Tokyo.
 

In Hong Kong, Ping An Insurance soared 7.3 percent after
buying a stake in European financial services firm Fortis.
 

Resource stocks were back in favour following a recent
slide touched off by worries about the outlook for global
growth.
 

BHP Billiton added 1.7 percent and Toho Zinc climbed 4.6
percent, helped by  stronger prices for base metals such as
copper and zinc.
 

Among major markets in the region, Hong Kong's Hang Seng
Index soared 4.1 percent, while Singapore's and South Korea's
benchmarks jumped 3 and 2.3 percent respectively.
 

YEN STRUGGLES
 

Rising stocks put the low-yielding yen under pressure. The
dollar hit a one-week high against the Japanese currency
overnight, before giving up some ground in Asian business to
trade around 110 yen
 

The euro dipped below Wednesday's two-week high of 163.60
yen to around 163 yen and held above $1.48 after bouncing off
the overnight low near $1.4710.
 

Oil, which hit an all-time high above $99 earlier this
month, pulled back this week after signals OPEC may pump more
crude and higher-than-expected U.S. inventory data.
 

But prices are still some 40 percent above mid-August
levels and news of a fire at an oil terminal in Minnesota
revived supply concerns on Thursday.

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