Asian stocks higher amid hopes of Fed action

Monday, 11 October 2010 22:15 -     - {{hitsCtrl.values.hits}}

BANGKOK (AP) — Asian markets were mostly higher Monday as investors plowed cash into stocks amid expectations the U.S. Federal Reserve will take action to prevent the American economy from slipping back into recession.

Hong Kong’s Hang Seng index was up 282.93 points, or 1.2 percent, at 23,227.11 and Australia’s S&P/ASX 200 rose 0.3 percent to 4,695.10. The Shanghai Composite Index jumped 2.4 percent to 2,803.39. Markets in Indonesia, India, Singapore and Thailand were also up.

South Korea’s Kospi was down 0.5 percent to 1,886.96. Japan’s financial markets were closed for a public holiday. Oil prices rose above $83 a barrel while the dollar was up against the yen but lower against the euro.

Expectations that the Fed — faced with chronically high unemployment — will act at its next meeting in November to prevent a “double dip” recession by forcing long-term interest rates even lower is driving money into stocks, analysts said.  “There’s a lot of hot money flowing into the stock market. Investors don’t want to hold cash,” said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong.

“High unemployment is a political problem, so the Fed will ... flood the market with liquidity,” Lun said. “With all this money, it’s no wonder people will use it to buy stocks.”

The U.S. jobless rate has been at or above 9.5 percent for 14 months — the longest stretch since the Great Depression. The unemployment crisis makes it all but certain the Federal Reserve will act at its Nov. 2-3 meeting to try to rejuvenate the economy.

The prospect of Fed action lifted stocks on Wall Street on Friday, when the Dow Jones industrial average closed above 11,000 for the first time since May. It finished up nearly 58 points to 11,006.

The Fed will likely buy billions more in government debt to further drive down rates on mortgages, corporate loans and other debt.

The idea is that even cheaper loans might get Americans to increase spending and boost the economy. By continuing to push long-term interest rates lower, the Fed’s actions will encourage investors to put money into other assets like stocks and commodities.

But such asset purchases would also put more dollars into circulation, causing the greenback’s value to decline.

In currencies, the dollar rose to 82.00 yen from 81.80 yen, but still hovered around a 15-year low. The euro rose to $1.3972 from $1.3944.