Asian shares dipped this morning and headed for their biggest ever monthly fall, but optimism that a new round of interest rate cuts may revive a comatose global economy helped many indexes keep their largest weekly gains on record.
The Bank of Japan cut interest rates to 0.3 per cent today, its first rate cut it seven years, but the move was smaller than expected and came after a split vote. The yen rose while Nikkei average extended losses to close down 5 per cent after the decision.
European stocks were set to open as much as 1.5 per cent higher, according to financial bookmakers, helped by optimism about the cushioning impact of recent rate cuts.
Oil prices dropped nearly $2 a barrel after data yesterday showed the US economy suffered its sharpest contraction in seven years in the third quarter, as consumers cut spending and businesses reduced investment.
And prices for base metals continued to slide, with Shanghai copper down a record 41 per cent this month alone, on persistent concerns the global economy faces a potentially severe and long recession.
Policy makers have responded by cutting rates and injecting liquidity, as well as adopting unprecedented rescues of their banking sectors. After weeks of erosion in investor sentiment, some analysts are now wondering whether the worst might now be behind, at least for now.
"There's a bit of a tug-of-war going on, since investor sentiment has changed slightly on the sense the market may have bottomed out for now, and people are willing to buy," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.
The MSCI index of Asian stocks outside Japan fell 0.6 per cent by 6.40am.
The index is up 13 per cent this week, its biggest weekly gain on record but is still down some 24 per cent for the month and about 54 per cent for the year.
Japan's Nikkei hit a 26-year low this week but rallied as much as 30 per cent in a three-day surge yesterday.
Shares in South Korea gained 2.6 per cent, while Taiwan surged 4 per cent, and India added 7 per cent.
Reuters