Wednesday December 17, 04:34 AM
Asian markets gain limited ground after Fed move
HONG KONG (AFP) - Asian share markets were higher Wednesday but gains were limited despite the US Federal Reserve's decision to cut interest rates effectively to zero, dealers said.
The Fed's move sparked a big rally on Wall Street but reaction in Asia was more cautious, in part because the region's markets have already gained some ground in recent weeks, they said.
Tokyo was up 1.1 percent at midday, off earlier highs, Hong Kong was 2.1 percent ahead and Sydney picked up 0.7 percent, also pulling back from previous highs in the morning.
The Fed on Tuesday reduced the target fed-funds rate from one percent to a range of zero to 0.25 percent -- the lowest since it began publishing the target in 1990 -- and said rates would be kept "exceptionally low" for now.
It said it would use "all available tools to promote the resumption of sustainable economic growth and to preserve price stability."
The Fed's decision, aimed at reviving the world's biggest economy, sent US shares surging, with the Dow Jones Industrial Average jumping 4.2 percent and the Nasdaq (NASDAQ: news) adding 5.4 percent.
But analysts said the aggressive move highlighted deep troubles in the United States and raised concerns about severe deflation if the rate cut fails to kick-start consumer spending.
"Such 'whatever it takes' policy underlines the dire economic situation in the US," said analysts at Calyon, the investment banking arm of Credit Agricole (Paris: FR0000045072 - news) .
Other Asian markets were also ahead in early trade but gains were mostly limited, dealers said.
New Zealand was 0.2 percent higher, Seoul added 0.9 percent and China was up 0.53 percent. Kuala Lumpur was 0.7 percent higher and Singapore was ahead 1.5 percent.
The rate cut pushed the dollar to a 13-year low against the yen and helped send several Asian currencies, including the Korean won and the Indonesian rupiah, sharply higher.
"Essentially, the Fed is saying it will keep interest rates at rock bottom for a long time," John Kyriakopoulos, a strategist at NAB Capital, said in a note to clients.
Some analysts said the stream of bad data coming out of the United States appeared to leave the Fed with few options.
The government on Tuesday said US housing starts dropped 18.9 percent in November to another record low. October's figure had already been the worst since the Commerce Department began publishing the data in 1959.
"The Fed is being pushed into a corner," said Grant Williamson, an adviser at Hamilton Hindin Greene stockbrokers in New Zealand. He said the steep rate cut "shows how severe things are over there."
US President George W. Bush said Tuesday that his country was in a "huge recession" and acknowledged he had been forced get away from his free-market principles with his administration's 700 billion dollar financial bailout plan.
With his government still mulling a dramatic rescue for the nation's Big Three carmakers -- General Motors (NYSE: GM - news) , Ford and Chrysler -- he said any of them going through "disorganised bankruptcy" would pose major economic problems.
In Europe on Tuesday, London's FTSE 100 index ended up 0.7 percent, the Paris CAC 40 picked up 2.1 percent and the Frankfurt Dax gained 1.6 percent.
-- Dow Jones Newswires contributed to this report --
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