Feb 4, 2008

Shanghai rebounds strongly to lead Asian rally

HONG KONG (MarketWatch) -- Shanghai-listed shares rebounded strongly Monday to lead a regionwide rally, after the Chinese market regulator approved the launch of two new stock funds for the first time in several months, triggering heavy buying in beaten-down resource stocks such as Jiangxi Copper Co. and PetroChina Co.

Most other Asian markets were cheered by a higher close on Wall Street, with Japanese stocks rising sharply as shares of Yahoo Japan (4689) and its largest shareholder Softbank Corp. (9984) paced gains after Microsoft Corp. launched a $44.6 billion bid to acquire the Japanese Internet company's parent Yahoo on Friday.

Australian shares got a lift from miners after Alcoa Inc. and Aluminum Corp. of China, or Chinalco, jointly acquired a 12% stake in Rio Tinto (RIO)(RTP), raising hopes the duo may block BHP Billiton's attempts to acquire Rio.

However, banking shares such as National Bank of Australia reversed intraday highs after Moody's Investors Service placed A$83 billion ($74.7 billion) of mortgage-backed debt on watch for a possible downgrade.

China's Shanghai Composite advanced 8.1% to 4,672.17 to lead the region, after the stock market regulator Friday approved two stock funds to raise up to 14 billion yuan ($1.95 billion). These were the first such approvals in several months, according to reports.

"The Chinese government allowed the distribution of more funds in China, which has helped restore investor confidence in the market. Also, the snowstorm situation isn't worsening any more ... It really is reasonable after the recent panic-selling there," said Ben Kwong, chief operating officer at KGI Asia in Hong Kong.

The Shanghai Composite is 11.2% lower than its closing level for 2007 in spite of Monday's advance. The index lost heavily in the past few weeks in the wake of monetary tightening measures by the country's central bank, fears a U.S. slowdown and the impact from brutal weather conditions in south and central parts of the country.

The recovery followed reports that an official at China's top economic planning body has said the snowstorms won't have a big impact on the Chinese economy in spite of affecting more than a 100 million people over the last few days.

Investors shrugged off news the World Bank has cut China's 2008 economic growth forecast to 9.6% from 10.8% previously, citing the impact on exports from a global slowdown. It also raised the consumer price index forecast to 4.6% from 3.8% previously.

Tokyo, Hong Kong, Sydney advance

In Tokyo, the Nikkei Stock Average finished up 2.7% to 13,859.70 and the broader Topix index advanced 2.1% to 1,364.72.

Shares of Yahoo Japan Corp., in which Yahoo (YHOO) holds 33.4%, jumped 9.5% in the wake of Microsoft's (MSFT) takeover approach for Yahoo at a 62% premium. Shares of Softbank Corp., the single largest shareholder in the Japanese Internet company with a 41% stake, also soared 15.8%.

Elsewhere, Australia's S&P/ASX 200 gained 0.4% at 5,867.40, after rising as high as 6,022 at one point during the session; New Zealand's NZX 50 index climbed 0.1% to 3,711.73, South Korea's Kospi gained 3.4% to 1,690.13.

In afternoon trading, Singapore's Straits Times index advanced 3% to 3,096.70 and India's Sensitive Index, or Sensex, climbed 3.5% to 18,878.06.

In Hong Kong, the Hang Seng China Enterprises Index soared 6.3% to 14,120.84, encouraged by the gains in Shanghai. The benchmark Hang Seng Index climbed 3.8% to 25,032.08.

KGI's Kwong said the advance in Hong Kong was aided by bargain buying after stocks were oversold recently. "But we expect a relatively small upside from these levels as we might see some profit-taking ahead of the New Year holidays," he said.

Some Asian markets will be closed this week for the Lunar New Year holidays. Chinese, South Korean and Taiwanese exchanges will be closed from Wednesday through Friday; Hong Kong, Singaporean, Malaysian and Indonesian markets will be closed Thursday and Friday.

Sydney movers

In Sydney, shares of Rio Tinto ended 0.6% higher on hopes stake purchase by Alcoa (AA) and Aluminum Corp., or Chinalco, could lead them to a takeover battle for the company with BHP Billiton (BHP)(BHP).

Shares of BHP gained 2%, while shares of Aluminum Corp. of China Ltd. (ACH), the listed subsidiary of Chinalco, surged by the daily limit of 10% in Shanghai.

Tony Robson, an analyst at BMO Capital Markets, wrote in a note that Rio's shares have recently risen on news of the stake purchase by Alcoa-Chinalco and as the duo bought the take at 21% above Rio's market price. "However, this move may be enough to stop BHP from bidding, with potentially negative consequences to the Rio Tinto share price in the short-term."

Banking shares, however, succumbed to late selling in Sydney on Moody's. Moody's said its move followed the placement of U.S. bond insurer, PMI Mortgage Insurance, on review for a possible downgrade. The rating watch applies to some 325 tranches of 144 Australian residential mortgage backed securities, or RMBS transactions, that were insured by PMI.

"We note that depending on the proportion of loans insured by PMI, their seasoning and other structural features, a number of these transactions may see their ratings confirmed upon the conclusion of the review process," wrote Moody's in a statement.

Shares of National Australia Bank (NAB) shed 3.4%, while Commonwealth Bank of Australia (CBA) stock sank 4.2%.

Regional detail

In Tokyo, shares of financials and exporters were helped by the pre-weekend finish on Wall Street. Mizuho Financial Group (8411)(MFG) stock rose 4.7% and shares of Nomura Holdings (8604) gained 4.5%. Among exporters, Honda (7267)(HMC) rose 3% and Toyota Motor Corp. (7203)(TM) gained 2.1%.

Shares of steelmaker JFE Holdings (5411) lost 5.5% after it lowered its net profit forecast for the full-year and said it will book a special loss of 50 billion yen ($472 million) due to a loss at its engineering business.

Among other gainers in Shanghai, shares of PetroChina Co. (PTR) soared 8.1% and Jiangxi Copper (JIXAY) surged 10%, while shares of China Life Insurance Co. (LFC) ended 8.2% higher.

In currency trading, the U.S. dollar gained as much as 0.3% at 106.90 yen, and the Australian dollar added 0.5% at $0.91.

March crude-oil futures declined by one cent to $88.95 a barrel in electronic trading, after dropping more than $2 lower to $88.96 Friday on the New York Mercantile Exchange.

Friday on Wall Street, the Dow Jones Industrial Average ($INDU) rose 92.8 points to close at 12,743.2 and the S&P 500 index ($SPX) climbed 16.87 points to close at 1,395.42, while the Nasdaq Composite ($COMPX) gained 23.5 points to finish at 2,413.36.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau

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