Fed cuts rates, Asian markets' limited gains

Asian share markets were mostly up on Wednesday but gains were limited as the US Federal Reserve's decision to slash interest rates effectively to zero failed to calm worries about the US economy.

The Fed's aggressive cut sparked a big rally overnight on Wall Street but in Asia, many markets saw early gains disappear as an initial bout of positive sentiment gave way to concerns that the global economic crisis is deepening.

Tokyo wavered in both positive and negative territory before closing up 0.52 percent, Sydney finished 0.4 percent ahead and Hong Kong -- up 2.1 percent at the open -- was up 0.93 percent around midday.

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.

The US Federal Reserve Building is pictured in October 2008 in Washington, DC

It said it would use "all available tools" to promote growth.

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 adding 5.4 percent.

But analysts said the aggressive move highlighted the 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.

Dealers said sentiment was uncertain across much of the region. Mumbai's Sensex was down 0.9 percent and Seoul's Kospi was off 0.3 percent.

Manila, up 2.2 percent at one point, closed ahead 0.8 percent. New Zealand was flat at just 0.03 percent up while Taiwan closed up 0.67 percent.

The Fed's 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.

But even though the dollar was tumbling, Japan's Finance Minister Shoichi Nakagawa ruled out immediate intervention in the foreign exchange market.

"I'm not thinking about it right now," he said.

Some analysts said the stream of bad data coming out of the United States appeare d 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."

There was also more bad news from Europe on Tuesday. In Germany, a newspaper report quoted a government memo saying the contraction in 2009 could be three percent or more, which would be the worst recession in the country's post-war history.

In Russia, an industrial output slump of 10.8 percent in November from October was the first such decline since early 1999, in the wake of the 1998 financial crisis.

In addition to the economic gloom, sentiment has been hit by the alleged 50 billion dollar fraud of onetime Wall Street high-flyer Bernard Madoff.

Banks and professional investors around the world are facing major losses from their exposure to Madoff's operations.

Christopher Cox, chairman of the Securities and Exchange Commission (SEC), said Tuesday the regulator would launch an internal probe into how Madoff supposedly carried out a pyramid scheme despite a decade of warning signs.


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