Asian stocks rise after Fed vote to cut stimulus

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Associated Press

Posted on December 18, 2013 at 11:32 PM

Updated Wednesday, Dec 18 at 11:35 PM

BEIJING (AP) — Asian markets mostly rose Thursday after investors took the U.S. Federal Reserve's decision to trim its stimulus as a vote of confidence the American economy is strengthening.

Oil edged down to just under $98 per barrel.

Tokyo's benchmark Nikkei 225 index gained 1.5 percent to 15,842.3 points while Sydney's S&P ASX 200 added 1.7 percent to 5,182.2. Taiwan, Seoul, Singapore and New Zealand also rose.

Markets in China and Hong Kong declined due to a rise in mainland interest rates that pushed up the cost of stock trading. China's benchmark Shanghai Composite Index shed 0.5 percent to 2,138.34 while Hong Kong's Hang Seng lost 0.2 percent to 23,096.28.

Investors had been jittery about a possible reduction in the Fed's bond-buying that has helped to support stock prices. But when the Fed announced a modest reduction Wednesday in monthly purchases, they took the decision as a positive sign.

"Growth outlook perceptions have improved because of the Fed's confidence in the economy," said economist Dariusz Kowalczyk of Credit Agricole CIB. "Equities in the U.S. are trading very well, and the reaction is being followed by other equity markets in Asia."

The Fed also tempered its pullback by indicating it will keep interest rates close to zero for longer than previously expected.

The Fed said that starting in January, it will reduce its bond-buying program to $75 billion a month from $85 billion. The reductions, or tapering, will be the first step toward winding down a program that has been in place since the 2008 financial crisis.

Taiwan's Taiex gained 0.6 percent to 8,402.66 and Seoul added 0.4 percent to 1,981.69. New Zealand was up 0.5 percent at 5,059.98.

In China and Hong Kong, markets declined after concerns about higher funding costs on the mainland overshadowed the U.S. news. Money market rates for short-term loans have risen to about 8 percent, sparking fears China might see a repeat of June's credit crunch, with repercussions for economic growth.

The impact of the Fed's change was expected to ripple through the global economy, possibly affecting exchange rates and prompting other central banks to alter monetary policy.

Overnight on Wall Street, the Dow Jones industrial average was off 0.6 percent while the broader S&P 500 index gained fell 0.1 percent to 1,779.

In Europe, investors were encouraged by signs the Germany economy is picking up steam.

Germany's DAX index rose 1.1 percent on Wednesday while France's CAC-40 closed up 1 percent. London's FTSE index rose 0.1 percent after unexpectedly strong job data stoked expectations the Bank of England may raise interest rates sooner than expected.

Some investors have worried a reduction in Fed stimulus might dent U.S. demand, hurting Asian exporters.

By purchasing bonds and holding down long-term interest rates, the Fed has encouraged borrowing and hiring. But all that buying, which made bond prices more expensive in relation to stocks, also led investors to shift money into equity markets.

Some Asian governments complained the Fed's effort to stimulate activity by forcing down commercial lending rates was causing money to flood into their economies in search of higher returns. That pushed up local currencies, making exports more expensive and less competitive abroad.

Asian governments responded by trying to hold down their currencies, especially after a decline in Japan's yen gave Japanese exporters a price advantage over their own competitors.

Asian central banks are unlikely to follow the Fed immediately because they will look to global growth trends, not just the U.S. economy, said Kowalczyk. He said any rate hikes will be carried out by governments that depend on capital inflows to support growth and want to prevent a reversal.

"India is expected to raise rates, and some thought Indonesia might do the same," he said.

In currency markets, the dollar declined to 103.935 yen from Wednesday's 104.127 yen. The euro declined to $1.3660 from Wednesday's $1.3686.

Crude oil for January delivery shed 10 cents to $97.96 per barrel in electronic trading on the New York Mercantile Exchange. The contract had gained 59 cents on Wednesday to settle at $98.06.

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