Asian shares rally on Japan clean-up plan

Asian shares rally on Japan clean-up plan

SINGAPORE (Reuters): Asian markets marked the first anniversary of the start of the regional financial crisis with strong rallies yesterday as Japan approved a key plan aimed at cleaning up its debt-ridden banking system.

A senior party official said the plan, which involves setting up a "bridge bank" system to wind up failed banks, had been approved at a meeting between ruling party and government officials.

Before the announcement, made after the close of trade, Tokyo stocks had risen on hopes that the government would bite the bullet of banking sector reform.

Although an early surge of more than two percent on Japan's Nikkei index petered out by the close, other markets held on to their gains.

Hong Kong shares, battered recently by concerns over Japan's fragile economy, ended nearly four percent higher while stocks in Thailand, the Philippines, Taiwan finished with similar gains. Regional currencies were also firmer, helped by the yen's strength above 140 to the dollar for most of the Asian day.

Dealers said the prospect of firm action to restructure the financial sector had sparked a genuine turnaround in sentiment.

"There has clearly been a shift from on high in terms of resolve to help Japan deal with troubled institutions," said Coen Kluyver, a manager at ING-Barings Securities.

Keiko Kondo, strategist at Merrill Lynch Japan Inc, said: "We can't see any negative factors on the horizon and the Nikkei 225 will likely maintain a firm tone at least until the July 12 Upper House elections."

The benchmark Nikkei average closed up 108.69 points, or 0.66 percent, at 16,471.58. One fund manager forecast the Nikkei would rise to 17,500 before the parliamentary elections.

The yen held steady around 138.50 per dollar for most of the day, before falling back past the 140 level in early Europe.

The volatile Hong Kong market, which missed Asia's Wednesday rally because of a holiday, raced 5.0 percent higher to 8,970.3 at one point before paring gains to end up 3.78 percent at 8,866.16.

Gains swept across the smaller Asian markets, most of them savaged since the crisis began on July 2, 1997, when Thailand gave up defending its baht currency.

"The market is only watching the Tokyo market and the yen," said a dealer in Kuala Lumpur, where the main share index ended up 1.48 percent.

The prospect of a revived Japanese economy was enough to inspire East Asian share markets desperate for exports to their largest customer.

Thai shares burst 3.98 percent higher to 277.98, Manila rose by 4.17 percent to 1,856.19 and Jakarta by 2.15 percent to 466.37. Singapore's key Straits Times Index ended up 2.72 percent at 1,124.87.

New Zealand shares closed 2.2 percent higher at 2,054.2, reinforcing a big Wednesday gain, although dealers warned the market seemed to have peaked for the short-term.

Good gains in Tokyo, Hong Kong and overnight in New York helped push Australia's All Ordinaries index 1.60 percent higher. Taiwan shares surged 3.55 percent, influenced mostly by Wall Street's nearly 100-point jump on Wednesday, traders said.

The odd market out on Thursday was Seoul. It closed down 1.20 percent at 311.77.

A broker said enthusiasm was limited by large short positions that foreigners took in the futures market on Wednesday.