8 Sep 2008

Asia-Pacific markets buoyed by US bailout

10:16 pm on 8 September 2008

Markets in Asia and the Pacific reacted positively on Monday to news that the United States government will bail out two troubled mortgage giants. The federal takeover is one of the largest in US history.

Fannie Mae and Freddie Mac made a combined loss of about $US14 billion in the past year and account for nearly half of the outstanding mortgages in America.

The NZX 50 index closed 38 points higher, or 1.13%, to 3374 on turnover of $67 million on Monday.

The New Zealand dollar was also higher on Monday but lost some of the ground it gained following news of the bailout. The Kiwi initially leapt more than 1.5 cents to US68.5c, but at 10pm it was trading at US67.5c after falling to a 22-month low of US65.86c on Friday.

BNZ currency strategist Danica Hampton says though the US news did bolster investor confidence, it also provided an excuse for the market to correct some of last week's sharp falls in the New Zealand dollar.

Asian stocks surged 4% on Monday on news that the US Treasury will underwrite the mortgage giants in an attempt to stabilise the financial system. It spurred investors to buy back risky assets and sell safe havens such as government bonds. In Japan, share prices closed up 3.38% and Hong Kong shares closed up 4.3%.

The Australian share market made its biggest one-day gain in nearly six months. At the 1615 AEST close, the benchmark S&P/ASX200 had surged 190.4 points, or 3.9%, while the broader All Ordinaries strengthened 176.8 points, or 3.57%.

European shares soared in early trade on Monday, bouncing from last week's slump. At 8.37am GMT, the FTSEurofirst 300 was up 4% at 1,170.20. The index is on course for its biggest one-day gain since 24 January.

ASB chief economist Nick Tuffley says the takeover could cost the US Treasury up to $US100 billion, increasing the riskiness of existing US government debt.

The treasury said the ultimate cost of the plan depends on how well the companies perform in future. In July, congressional budget analysts estimated a rescue would likely cost taxpayers $US25 billion.