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TOKYO: Most Asian stock markets rebounded Wednesday from a dramatic sell-off as an unprecedented US rescue plan for insurance giant AIG restored confidence in the global financial system for now.
Asian markets opened to learn that the US Federal Reserve would extend an US$85 billion loan to the American International Group (AIG), news which staved off another round of bloodletting overnight on Wall Street.
Tokyo's benchmark Nikkei-225 index rose more than two per cent in the morning session. One day earlier, the Nikkei plunged nearly five per cent to a more than three-year low after the collapse of US investment titan Lehman Brothers.
Hong Kong shares were up a more modest 0.49 per cent, while Seoul gained 3.66 per cent. But Sydney was flat and Shanghai dipped slightly on opening.
The Federal Reserve plan, under which the US government will take a nearly 80 per cent stake in AIG, marks an unprecedented intervention by the US central bank into a private business.
The intervention is considered to be "the first step towards financial stabilisation," said Masatoshi Sato, a broker at Mizuho Investors Securities in Tokyo.
But Sato warned it was likely to be only a brief calm, with the market confused about what guidelines US authorities are following in dealing with troubled financial institutions.
The Federal Reserve intervened in rescuing investment firm Bear Stearns earlier this year and now is lending support to AIG. But it allowed Lehman Brothers to collapse.
"The principles of US financial authorities are still unclear," Sato said. "Risks linger and the market will likely be unstable for a while."
Motoki Ichikawa, investment information chief at SMBC Friend Securities in Tokyo, said the AIG rescue encouraged investors.
"It enabled the market to take a breather for now as the announced plan is a drastic measure," he said.
But Ichikawa said the market was "unlikely to keep surging ahead on this news alone."
"The market is still weighed heavily with persistent concerns over the global financial system and a worldwide economic slowdown," he said.
US financial giants have suffered from the subprime crisis, in which high-risk customers who received loans during the housing boom have been struggling to make their mortgage payments.
Wall Street was buoyed as news emerged of the AIG deal, with the Dow Jones Industrial Average rallying 1.30 per cent in a volatile session Tuesday.
Taiwan shares were 2.44 per cent higher Wednesday morning following the Wall Street rebound and the Taiwan central bank's decision to cut the bank reserve ratio, dealers said.
Singapore shares were 0.95 per cent higher.
Dealers said the market also appeared encouraged by the Federal Reserve decision to hold interest rates steady, a move seen as a sign of confidence in a recovery.
The dollar was firmer in Asian trade, rising to US$106.54 in Tokyo morning trade from US$105.62 in New York late Tuesday.
- AFP/yb
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