Asian shares rallied to two-week highs yesterday, building on strong global gains after the world’s six major central banks moved to tame a liquidity crunch for European banks by providing cheaper US dollar funding.
The US Federal Reserve, the European Central Bank (ECB) and the central banks of Canada, Britain, Japan and Switzerland said on Wednesday they would lower the cost of existing US dollar swap lines by 50 basis points from Monday and arrange bilateral swaps to provide liquidity for other currencies.
MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 4.4 percent to its highest since the middle of last month, rising above a 25-day moving average, after US stocks soared 4 percent on Wednesday.
Japan’s Nikkei also surged well above its 25-day moving average, closing up 1.9 percent.
Chinese shares outperformed, with the Hang Seng Index soaring 5.63 percent to 19,002.26 after Beijing cut the reserve requirement ratio for commercial lenders on Wednesday for the first time in three years, signaling a policy shift as global weakness weighs on China’s economy.
The Shanghai Composite Index, which covers both A and B shares, gained 2.29 percent to 2,386.86.
Taipei surged 3.98 percent, Seoul closed 3.72 percent higher at 1,916.18 and Sydney was 2.64 percent higher at 4,228.6. Manila gained 1.89 percent and Wellington rose 0.22 percent.
The euro changed hands at US$1.3455 after jumping to a one-week high of US$1.3531 on Wednesday, while the US dollar index slumped to a two-week low of 77.923.
“The moves were cheered by markets, as it shows central banks are willing to work together to ease Europe’s sovereign debt crisis,” said Stan Shamu, strategist at IG Markets.
However, some analysts were more cautious, saying the central banks’ moves just bought more time for Europe as it battles to contain its worsening debt crisis.
“This just means they expanded emergency measures. The more important point is whether Europe is going to have a bigger bailout fund and that’s still up in the air,” said Soichiro Monji, chief -strategist at Daiwa SB Investments, in Tokyo.
The central banks’ move could warm investor sentiment toward riskier assets as it aims to ease severe funding strains for European banks as money markets seized up as a result of European debt woes.
However, European officials have so far failed to nail down who will finance a bailout scheme, which is vital to keeping the crisis from engulfing the continent’s biggest economies.
Gold held steady at a two-week high of about US$1,750 an ounce, after rising nearly 2 percent on Wednesday, when investors sought a hedge against currency depreciation after the central bank action.
The liquidity action by central banks came a day after European officials agreed to strengthen the region’s rescue fund and seek more aid from the IMF.
Germany suggested it was open to increasing the IMF’s resources through bilateral loans or more special drawing rights, reversing the stance Berlin took earlier this month at the Cannes G20 summit.
The policy shift came as Germany presses its EU partners to agree to treaty changes to create coercive powers to make eurozone countries change their budgets if they breach EU deficit and debt rules, at a EU summit scheduled for next Friday.