* Turkey raises interest rates 425 bps to 12 pct, boosts
* Aggressive action stirs hopes of stabilisation in emerging
* Safe-haven yen dips, while commodity currencies rally
* Japanese shares seen opening up, rest of Asia to follow
By Wayne Cole
SYDNEY, Jan 29 Turkey's central bank stunned
investors with a huge hike in interest rates on Wednesday,
stirring hopes the drastic action would short-circuit a vicious
cycle of selling in emerging markets and revive risk appetite in
the developed world.
The bold move even managed to overshadow the U.S. Federal
Reserve's meeting at which it is widely expected to trim its
asset buying program by another $10 billion a month.
Turkey followed India by tightening policy at a midnight
meeting of its central bank, with the stunning hike in the
overnight lending rate of 425 basis points taking rates all the
way to 12 percent.
"Desperate times call for desperate measures, this is a
confidence saving measure," said Gennadiy Goldberg, an interest
rate strategist at TD Securities in New York.
"It will definitely hurt but it might be enough to stem the
bleeding. It looks like the lira acted positively, whether it
lasts is anyone's question."
Early signs were that the bold move might be enough to stem
a rout in the Turkish lira which surged to 2.1950
per dollar, and away from Monday's historic low of 2.39.
More emerging market central banks are expected to tighten
policy in a bid quell a mix of inflationary pressures at home
and a flight of capital abroad. South Africa's central bank
meets on Wednesday.
Just the prospect of action had helped stabilise stock
markets across the globe after several days of hectic selling.
The MSCI emerging equity index edged up 0.3 percent
from a 4-1/2 month low.
On Wall Street, the Dow ended Tuesday with gains of
0.57 percent, while the S&P 500 rose 0.61 percent.
The calmer tone was reflected in the market's favoured
measure of volatility, the VIX index, which dropped over
9.0 percent on Tuesday to 15.80 And off a peak of 18.99.
Currencies leveraged to commodity prices and global economic
growth also benefited from the better mood.
The Australian dollar jumped a third of a U.S. cent
to $0.8800 in the wake of the news from Turkey. The Aussie is
often used as a proxy for hedging against stress in less liquid
Going the other way, the safe-haven yen gave up some of its
recent gains with the dollar rising to 103.31 yen from a
seven-week trough of 101.71.
The retreat in the yen should help Japanese shares recoup
some of their losses, with Nikkei futures pointing to a
While emerging markets could still be vulnerable to whatever
the Fed decides on U.S. policy, investors seemed to have made
peace with a steady unwinding of exceptional stimulus.
Benchmark 10-year Treasury yields, for instance,
have steadied at 2.75 percent compared to a peak of 3.04
percent at the start of the month.
In commodity markets, the main mover was oil as U.S. crude
hit its highest so far this year on expectations that supplies
were dwindling at the contract's benchmark delivery point.
U.S. light crude oil Was up $1.69 at $97.41, while
Brent crude added 76 cents to $107.45 a barrel.