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Asian stocks rally on hopes of new rescue plan

Asian stocks rose in early trade on Wednesday after a powerful rally overnight on Wall Street as hopes grew of a new US financial rescue package.

Many of the region's markets were shut for public holidays, but those that were open took their cue from New York where the Dow Jones index posted its third-largest single-day point gain, a day after its worst loss.

The US Senate is expected to vote on a revised 700-billion-dollar Wall Street bailout, after the House of Representatives sparked renewed market turmoil by rejecting the original package.

But gains in Asia were limited by ongoing doubts about the plan.

Tokyo climbed 1.24 percent by lunch, Sydney gained 3.0 percent, Taipei added 0.89 percent and Seoul firmed 0.4 percent.

CMC Markets senior dealer Dominic Vaughan in Sydney described the rebound as a "corrective bounce".

Dealers said the chorus of concern following US lawmakers' rejection of the Treasury's proposed bank bailout package had raised hopes that a new package can be thrashed out and approved within the coming days.

"Senate Democrats and Republicans believe it is essential that we work quickly on this important legislation to restore confidence to our financial system and strengthen the economy," said Senate Majority leader Harry Reid. Wall Street's Dow Jones Industrial Average leapt 485.21 points (4.68 percent) to close at 10,850.66 Tuesday.

"There are expectations that lawmakers will pass a bailout bill by midweek or the government will come up with a new plan," said Kazuhiro Takahashi, equity manager at Daiwa Securities SMBC. "But the markets have not fully recovered amid lingering caution."

The Bank of Japan announced just before the opening bell that the nation's business confidence had fallen to the lowest level in five years in September as Asia's largest economy skirts recession.

The central bank pumped emergency funds into the short-term money market for an 11th straight business day to try to ease strains on the financial system, adding 800 billion yen (7.5 billion dollars) in the morning.

The fear is that if credit flows the lifeblood of the global economy dry up, then a worldwide recession may follow.

"Unless bank funding pressures ease significantly and soon, then global growth expectations will continue to worsen," warned NAB Capital economist John Kyriakopoulos in Sydney.

In New Zealand, where shares were up 3.3 percent in afternoon trade, the central bank chief reassured jittery investors that the country's banking system remained solid amid the chaos in the United States.

"The banking system is sound in New Zealand, and we do not expect this to alter," Reserve Bank of New Zealand governor Alan Bollard said in a statement.

World markets have suffered sharp plunges in recent weeks as a financial crisis engulfed Wall Street, destroying major financial institutions.

Analysts were cautious about whether the rally could mark a turning point for battered stocks.

"While policy initiatives in the US may help reduce the risk of a more severe credit crunch, we think that any rallies are likely to be bear market bounces as opposed to the start of new bull trends," Goldman Sachs analysts told clients.

"Without the fundamental fuel of rapid earnings growth, markets will not be able to advance in a sustained manner."

European shares were helped by the strong gains on Wall Street. In London, the FTSE 100 index rose 1.74 percent Tuesday as the Paris CAC 40 rose 1.99 percent and Frankfurt's DAX added 0.41 percent.

The dollar was higher in Asian trade as the market monitored developments related to the US financial rescue package.

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 dollars from 1.4092 and to 150.42 yen from 149.55.



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