China's move to calm devaluation fears stabilises most units

SINGAPORE, Jan 26: Asian financial markets recovered today after China moved to calm fresh fears over a possible yuan devaluation, but analysts warned that regional stocks and currencies remained vulnerable, reports AFP.

"There was an overreaction yesterday and the market is readjusting to what happened," said Kenneth Cheng, chief analyst with New York-based financial markets consultancy MCM Asia-Pacific Co Ltd in Singapore.

"But from here, I do see Asian stocks and currencies vulnerable on the downside," Cheng said, citing the continuing financial turmoil in Brazil - the basis for renewed speculation about yuan's devaluation.

He pointed out that with the continues plunge in Brazilian real currency, there would be a spillover effects on other emerging markets.

This sent regional markets plummeting on Monday because a stable yuan was crucial to the recovery of battered Asian economies.

Today, most Asian bourses and currencies recovered after Chinese Premier Zhu Rongji himself clarified the yuan would not be devalued.

"Overall, emerging markets are on the defensive," said Thio Chin Loo, currency strategist with Banque Paribas in Singapore.

Thio said if Brazil's problems worsened, Asian currencies would take a hit. This was inevitable, she said, to take the heat off interest rates which should be maintained at low levels for recovering regional economies.

"On a sustainable basis, I think the currencies will take the hit rather than interests rates. Currencies will weaken to keep interest rates down," she added.

Meanwhile, the Indonesian rupiah rose to 9,150 to the US dollar mid-afternoon from Monday's close of 9,350, the Singapore dollar to 1.6833 from 1.6885. The Thai baht to 36.65 from 36.85, and the South Korean won to 1,175.25 from 1,180.

The Philippine peso stood higher at 38.56 from 38.78 while the Taiwan dollar was at 32.296 from 32.349.

The Japanese yen was up at 113.45 against the greenback from Singapore's close of 114.42 and New York's close of 113.87 on Monday.

Also on the uptrend were bourses in Singapore, Japan, Indonesia, the Philippines, Thailand and Taiwan.

Share prices in Tokyo closed 1.2 per cent higher as the key Nikkei 225 Index rose 173.20 points to 14,382.01, finishing off the high of 14,501.44.

"Like the US market, the Tokyo market enjoyed a boost thanks to a strong assurance from Chinese Premier Zhu Rongji that China would not devalue its currency," said Yasuo Ueki, a senior market analyst at Nikko Securities Co Ltd.

"With the premier's assurance, many investors think the Brazilian currency crisis will not spread to Asia," he said.

Philippines share prices closed 1.6 per cent higher.

"Yesterday was more of a panic reaction. Now we are seeing a return of sanity," James Lago of Wellex Global Equities said, referring to the 5.4 per cent plunge in Manplan on Monday.

Singapore's benchmark Straits Times index was up 25.76 points at 1,423.78 at the end of morning trading, off a high of 1,445.66, while the Jakarta Stock Exchange Composite Index closed up 10.385 points at 392.863.

The Stock Exchange of Thailand (SET) main index firmed 4.39 points to close the morning session at 367.75 while the benchmark Taiwan Stock Exchange weighted price index rose 82.34 points to end at 6,115.64, following a 3.1-per cent plunge in the previous sessions.

The Hong Kong stock market was still lethargic after dipping 2.5 per cent a day earlier.

The blue chip Hang Seng Index was down 20.72 points, or 0.2 per cent, at 9,478.78 at the end of morning trading.

Malaysia's key Composite Index closed the morning down 6.06 points at 604.13 while the Korea Stock Exchange main index fell 8.53 points to close at 531.23.