Cheer over interest rate cut short-lived

Cheer over interest rate cut short-lived

SINGAPORE (AFP): The latest U.S. interest rate cut was welcomed as a reassuring sign on Wednesday by most of Asia's stock markets, but profit-taking took a little shine off regional gains.

There was generally positive sentiment that the lowering of short-term interest rates in the United States would further boost Asian currencies and consequently regional share markets.

Positive impact from the rate cut was strongest in Jakarta, where the benchmark composite index rose by 3.9 percent or 13.768 points to 369.994, despite concerns over the unstable political situation there following violent clashes there last week.

"The Fed's rate cut is likely to boost regional currencies, which is positive for regional stock markets," a Harita Kencana Securities analyst said.

Singapore share prices advanced 2.9 percent, with cheer over the U.S. interest rate-cut matched by a surprise half-point cut in the prime rate of Singapore's biggest local bank Development Bank of Singapore.

The Straits Times Index closed 35.94 points higher at 1,271.70.

The cut in the DBS prime rate to 6.0 percent has triggered expectations of a further reduction before the year-end, dealers said.

"We think there could be another cut before Christmas, although this will depend partly on what the Fed does before the end of the year," said a dealer with a European bank here.

Manila's key stock index rose 2.3 percent or 41.54 points to end at 1,820.77.

"Whatever level of cut that the Fed decides upon will be positive for the market," said Jasmine Juanico of Anscor-Hagedorn Securities Inc. in Manila, adding that "it could have a trickle down effect on the troubled economies like the Philippines."

The euphoria was more subdued in Hong Kong, where analysts said the U.S. rate cut had been anticipated and factored into trade. The key Hang Seng index gained 64.73 points or 0.6 percent to close at 10,213.42.

Paul Shulte, ING Barings strategist in Hong Kong, said the rate cut highlighted a dilemma for fund managers.

As rates decline, "the opportunity cost of holding cash is rising," forcing fund managers to push more money into equities "even though they don't believe in the rally," Shulte said.

The impact was limited in Tokyo, where the Nikkei-225 average of the Tokyo Stock Exchange closed 1.3 percent up, boosted more by active public fund buying in futures, brokers said.

The index rose 186.23 points to finish at 14,599.23.

A Marusan Securities broker noted "negative factors such as uncertainties about the U.S. market outlook are beginning to disappear."

An analyst with Phillipe (Thailand) Securities said that although the market reacted positively to the U.S. rates cut, gains could be short-lived with profit-taking likely to set in.

The Stock Exchange of Thailand's (SET) broad-based index rose by 0.3 percent or 1.05 points to 345.13.