New plan boosts dollar, markets in Asia

TOKYO – The dollar was higher in Asian trade yesterday as risk-averse investors turned to the greenback as a safe haven in the fast-moving global financial crisis, dealers said.

The dollar strengthened to 106.45 yen in Tokyo morning trade from 106.11 in New York late Tuesday. The euro firmed to $1.4135 from $1.4092 but was still down sharply from earlier this week.

The euro edged up to 150.42 yen from 149.55.

Demand rose for the dollar as “funding from banks and the raising of money on the markets are not functioning properly,” said Yosuke Hosokawa, forex chief at Chuo Mitsui Trust Bank.

“Due to the inability to steadily obtain funds, markets have found themselves in a situation where they are unable to take risks. The dollar’s movement is based on supply,” he added.

Although central banks have injected billions of dollars into markets recently, investors at times of stress tend to pour their money into the safest alternatives they can find – which many people still regard are US Treasury bills, notes and bonds.

The Bank of Japan pumped 800 billion yen ($7.5 billion) in emergency funds into the money market Wednesday, the 11th straight business day it has injected funds to keep cash flowing.

Market players were cautiously optimistic of a new US bailout plan for the banking sector after the House of Representatives voted down a $700-billion package.

The congressional failure sparked the worst one-day sell-off in Wall Street history on Monday. But US share prices rebounded overnight and Asian stock markets were up in early trade Wednesday.

“Markets continue to worry ahead of the bailout plan’s approval, as there are mounting fears over the health of US finances, and persistent worries over the banking sector,” Hosokawa said.

Investor confidence has been pummeled in recent weeks as trusted Wall Street firms crumbled under the credit crisis while others were taken under federal control.

Markets “have lost the measuring stick to gauge whether the situation is safe or not, so they prefer to just hold on to their money,” Hosokawa said.

Markets were little impacted by Japanese data that showed business confidence among major manufacturers fell into negative territory for the first time in five years. Previous data had already shown Japan slipping towards recession.

Markets recover

Most Asian markets bounced back Wednesday on hopes that a $700-billion bailout for the US financial system will soon win legislative approval, although doubts persisted about the long-term outlook for the global economy.

Japan’s Nikkei 225 index, the benchmark for Asia’s biggest bourse, gained 108.40 points, or 0.96 percent, to close at 11,368.26. On Tuesday, it plunged 4.1 percent to its lowest in more than three years on disappointment that the US House of Representatives had rejected the bank rescue package.

Australian stocks rallied, with the benchmark S&P/ASX-200 index jumping 4.2 percent after sinking 4.3 percent Tuesday. Markets in Taiwan and India also gained.

Otherwise, regional reaction was muted because several markets were closed for holidays, including those in Hong Kong, mainland China, Singapore, Indonesia, Malaysia, and the Philippines.

Investors took heart from the rebound on Wall Street Tuesday amid expectations that lawmakers will salvage the rescue plan aimed at cleaning up the bad debt mess at banks and other financial institutions. The US Senate was to vote Wednesday on a revised bailout plan, with a House revote expected later in the week.

In New York, the Dow Jones industrial average surged nearly 500 points after plunging 777 points on Monday.

But analysts warned that new worries were already starting to emerge about possible compromises that might be included in a reworked emergency package, raising questions about how effective it may be when implemented.

“The market is already expecting the plan to pass. The question now is what’s next,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Securities Co. in Tokyo.

Investors are still concerned about declining US housing prices and the overall US economy – a vital export market for Asia – especially as they look ahead to the Christmas shopping season.

Major Japanese companies, including electronics and autos, are counting on solid exports to the US to keep up profits, Fujito said.

“Gloomy times are expected to continue for some time,” he said, adding that a turnaround in Japan’s market couldn’t be expected at least until the latter half of next year.

Elsewhere, Taiwan’s stock market recovered from its drop to close up 0.8 percent. South Korea’s Kospi lost its ea to 1,439.67.

The dollar’s recent recovery, which tends to be a boost for Japanese shares, also encouraged some buying during Wednesday’s Tokyo session. The dollar recovered to 105.97 yen in the afternoon, up from about 104 yen earlier in the week.

Japanese banking shares like Mizuho Financial Group and Mitsubishi UFJ Financial Group were among the gainers. Exporters like Sony Corp. and Toyota Motor Corp. also rose.

Anthony Huang of Taiwan Securities said investors remain uncertain about the package. And even if the bailout passes, doubts remain about the future of Asian economies.

“Taiwan can’t be doing well if consumers in US and Europe are not spending enough.” Huang said. – AP