Modest gains in Asian markets as euro fears remain

Relieved markets edged mostly higher Tuesday after Europe and the IMF agreed on the biggest financial system bailout since the 2008 banking crisis, but questions over its implementation capped gains.

Global stocks and the euro soared Monday after Europe and the International Monetary Fund announced 750-billion-euro (one-trillion-dollar) package of loans, guarantees and credits to ease the immediate crisis.

Central banks from the United States to Japan also played a crucial part in efforts to stop the Greek debt crisis spreading, as they agreed to intervene to ensure there was plenty of liquidity on the money markets.

However, in Asia gains were limited Tuesday and the euro eased back against other major currencies as investors focused on how the massive bailout will be carried out and the implications for the eurozone’s underlying fiscal woes.

“Yesterday’s gain seems to have reflected much of the cheer from the EU’s bailout plan,” Lee Kyoung-min at Woori Investment & Securities in Seoul told Dow Jones Newswires.

“Investors will likely bet on stocks strongly when they are convinced that fundamentals in Europe wouldn’t be hurt by those countries with debt troubles,” he added.

Tokyo trimmed early gains to close up 0.08 percent at noon, while Sydney was 0.31 percent higher and Seoul lifted 0.45 percent.

Shanghai was 0.91 percent stronger as dealers digested data showing China’s consumer prices rose 2.8 percent in April compared with the same month a year earlier, while industrial output expanded 17.8 percent in the same period.

However, they will keep an eye on the fact that house prices continued to soar and bank lending jumped last month.

Singapore added 0.32 percent.

However, Hong Kong edged 0.24 percent lower in early trade on profit taking after soaring 2.54 percent Monday. The euro, which briefly jumped above 1.30 dollars on the financial rescue package Monday, bought 1.2766 dollars in Tokyo morning trade, down from 1.2778 dollars in New York late Monday.

The single currency was also hit by a warning from Moody’s Investors Service that it may downgrade Portugal and lower debt-laden Greece’s rating to junk status, after a similar move by Standard & Poor’s which saw borrowing costs spike for Athens.

“The EU’s rescue package seems to have soothed immediate fears of a spreading of the European debt crisis,” said Mike Jones, currency strategist at the Bank of New Zealand.

“However, market sentiment is still fragile and the eurozone’s structural issues, including whopping budget deficits, still need to be addressed.”

The debt crisis began as Greece teetered toward default, triggering fears that other weak economies such as Portugal, Spain and Italy may be next.

“The question is if (debt-ridden European) governments can exert leadership in pushing with austere measures,” said Hideaki Inoue, a senior dealer at Mitsubishi UFJ-Trust and Banking Corp.

The euro members have given reassurances they would commit to austerity measures that will bring their fiscal positions back into line but markets remained cautious.

The British pound held at 1.4836 dollars after Prime Minister Gordon Brown said he would resign as Labour leader by September and hold talks with the Liberal Democrats on forming a government after a general election ended in stalemate.

Oil was higher. New York’s main contract, light sweet crude for June delivery, gained 51 cents to 77.31 dollars a barrel while Brent North Sea crude for June soared 42 cents to 80.54 dollars.

Gold opened at 1,202.00-1,203.00 US dollars an ounce in Hong Kong, up from Monday’s close of 1,187.50-1,188.50 dollars.

AFP