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Asian stock markets jump on Fed's low rates pledge

Asian stock markets jump after the US Federal Reserve pledged to keep interest rates super near zero for the next two years. Read Our expert's analysis on Fed's move

twitter-logoAssociated Press | August 10, 2011 | Updated 12:56 IST

Asian stock markets jumped on Wednesday following a surge on Wall Street prompted by an unprecedented pledge from the US Federal Reserve to keep interest rates super low for the next two years.

Dow jumps 429 points on Fed's statement

Japan's Nikkei 225 index climbed 1.2 per cent to 9,050.27 and Hong Kong's Hang Seng jumped 3.1 per cent to 19,896.57. South Korea's Kospi, which at one point Tuesday plummeted nearly 10 per cent, gained 1.3 per cent to 1,822.74.

PERSPECTIVE: Markets grab Fed's olive branch

Australia's S&P/ASX 200 index rose 2.7 per cent to 4,142.50 and New Zealand's benchmark was up 3 per cent. Indexes in Taiwan, the Philippines and mainland China were also higher.

PERSPECTIVE: A crisis of confidence

The Dow Jones industrial average finished on Tuesday with a 429-point gain after the Fed pledged to keep its key interest rate at its record low of nearly zero through the middle of 2013. The central bank also said that it has discussed "the range of policy tools" it can use to spur the economy.

Worries about the US economic recovery have been building since the government said that economic growth was far weaker in the first half of 2011 than economists expected.

A downgrade of US government debt by Standard and Poor's rating agency sent shock waves throughout financial markets and reinforced anxiety that the US economic recovery is stalling.

READ: S&P downgrades US' AAA credit rating to AA+

Martin Lakos, director of Sydney-based stockbroker Macquarie Private Wealth, said the Fed announcement was key to adding stability to the markets.

"Clearly yesterday there were rumours, speculation - whatever you like - the Federal Reserve would in fact come out with a positive announcement and that's clearly what they've done," Lakos told Australian Broadcasting Corp. television.

On Monday, the Dow plunged 634.76 points in the first trading day after S&P downgraded the US one notch from its top AAA credit rating to AA+. World markets followed the Dow into a tailspin as all eyes looked to the Fed for help.

In a reversal of earlier forecasts, economists now believe there is a greater chance of another US recession because the economy grew much more slowly in the first half of 2011 than previously thought.

The manufacturing and services industries barely grew in July. The unemployment rate remains above 9 per cent, despite the 154,000 jobs added in the private sector in July.

Economies across the globe are also struggling.

Worries are growing that Spain or Italy could become the next European country to be unable to repay its debt. High inflation in less-developed countries, which have been the world's main economic engine through the recovery, is another concern. China's inflation rose to a 37-month high in July.

Benchmark oil for September delivery was up $1.45 to $80.75 a barrel in electronic trading on the New York Mercantile Exchange.

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