* Asian stocks, currencies rebound as Turkey lifts rates
* Aggressive action stirs hopes of stabilisation in emerging
* Safe-haven assets dip, while commodity currencies regain
* Optimism will face test as Fed is expected to trim bond
By Wayne Cole
SYDNEY, Jan 29 Asian markets rallied on
Wednesday after Turkey stunned investors with a huge hike in
interest rates, stirring hopes drastic action would
short-circuit a vicious cycle of selling in emerging markets and
revive risk appetite.
European shares were expected to ride the wave of optimism,
with financial spreadbetters predicting Britain's FTSE 100
to open 43-48 points higher, or up by as much as 0.7
percent; Germany's DAX was seen opening 86-96 points
higher, or up by around 1 percent; and France's CAC 40
seen up by 36-39 points, or up by around 0.9 percent.
"The major bourses are facing some solid gains at the open,
with the momentum from Asian trade set to continue," IG market
strategist Stan Shamu said in a note to clients.
Later in the session, the improved mood will face an test
from the U.S. Federal Reserve, which is widely expected to trim
its asset buying program by another $10 billion a month at the
conclusion of its two-day policy meeting.
But the relief was enough to lift Japan's Nikkei 2.7 percent
and S&P 500 e-mini futures 0.5 percent, while
traditional safe havens such as the yen, bonds and gold all
MSCI's broadest index of Asia-Pacific shares outside Japan
rose 1.2 percent after three sessions of falls.
Turkey followed India by tightening policy at a midnight
meeting of its central bank, with a huge hike of 425 basis
points taking the overnight lending rate all the way to 12
"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 it might be enough to stem the rout in
the Turkish lira, which surged by the most in five years to
reach 2.1650 per dollar from Monday's historic low
of 2.39. Turnover was exceptionally strong in Asia, where the
currency is rarely traded.
More emerging market central banks are expected to take
steps to quell a mix of inflationary pressures at home and a
flight of capital abroad. South Africa's central bank also holds
its policy meeting later on Wednesday.
FED STILL AHEAD
Just the prospect of action had helped stabilise stock
markets across the globe after several days of hectic selling.
The MSCI emerging equity index climbed 1.1 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 benefited from the better mood. Also helping was
surprising strength in industrial production in South Korea - an
antidote to recent softness in Chinese data.
The Australian dollar rose more than a third of a
U.S. cent to $0.8825 in the wake of the news from Turkey. The
Aussie is often used as a proxy for hedging against stress in
less liquid emerging markets.
Currencies from Malaysia to Indonesia and India all gained,
while the South Korean won boasted its biggest daily rise in
Going the other way, the safe-haven yen gave up some of its
recent gains as the dollar advanced about 0.4 percent on the day
to 103.31 yen from a seven-week trough of 101.71 touched
at the start of the week.
Emerging markets could still be vulnerable to whatever the
Fed decides on policy. The reduction of U.S. stimulus, combined
with the resulting higher bond yields, is one reason funds have
been switching money back to the developed world.
Yet many investors seem to have made peace with a steady
pullback in asset-buying, given it is balanced with a commitment
to keeping rates near zero for a long time to come.
Benchmark 10-year Treasury yields, for instance,
have steadied around 2.78 percent, compared to a peak of 3.04
percent at the start of the month.
In commodity markets, gold lapsed to $1,253.50 an ounce
to be well off Monday's high of $1,278.01.
Oil markets were awaiting inventory data from the U.S.
Energy Information Administration (EIA), due later in the day,
to gauge the country's demand.
U.S. crude edged back 11 cents to $97.30, having hit
its highest so far this year on expectations that supplies were
dwindling. Brent crude added six cents to $107.47.