Asian stocks trimmed losses Tuesday with some bourses bouncing into the black as investors decided a recent global sell-off was overdone, despite lingering concerns about the US economy.
Bourses were mixed, with Tokyo and Hong Kong rebounding strongly in late trade as speculation grew that the US Federal Reserve will cut rates again at its meeting next month, dealers said.
Bargain-hunters helped lead the gains in Tokyo, Asia's largest bourse, where the benchmark Nikkei index slipped to a 16-month intra-day low in early trade before finishing a robust 1.12 percent higher.
Hong Kong also finished the day 1.13 percent higher after an early slide, while Singapore was up 0.78 percent and Shanghai rose 0.45 percent.
"Japanese shares rebounded, lifting some Asian shares. But once the market cools its head shares could float back down again and open lower Wednesday morning," said Fumiaki Nakanishi of SMBC Friend Securities.
He said that a rumour of unknown origin spread through the market in late trade that the Fed will cut rates, "sparking a buying bout."
Sentiment was also lifted by an online Financial Times report that the Fed was expected to give a brighter forecast for the US economy, even though the report, if true, would likely decrease chances of a rate cut.
"The dramatic turnaround toward the close reflects expectations that the market might have hit a near-term bottom, for now at least," said Michael Hsu, an assistant vice president at Taiwan Life Asset Management in Taipei, which ended flat.
All Asian shares had opened lower Tuesday morning after a raft of bad news from the US banking sector, which has been hit hard by rising defaults in "subprime" loans offered to high-risk customers during the US housing boom.
"The biggest focus is whether US shares will stabilise or not," said Masayoshi Yano of Tokai Tokyo Securities.
On Wall Street overnight, the Dow Jones Industrial Average slid 1.66 percent, dropping below the psychologically important barrier of 13,000 after the negative news in the banking sector.
"When the US market drops by one-and-a-half percent you're going to be in for a fairly negative day," said Michael Heffernan, a private client advisor at Austock.
Seoul fell 1.12 percent and Bangkok closed down 0.13 percent, both well off early lows. Sydney closed down 1.68 percent and Manila fell a steeper 2.87 percent.
Mumbai was down nearly two percent in midday trade. Jakarta was down 0.83 percent and Kuala Lumpur slipped 0.59 percent.
Investors were looking to the minutes of the October meeting of the Federal Open Market Committee, due to be released Wednesday, for clues on the Fed's rate move next month.
The US central bank has cut rates twice since September in an attempt to appease distressed financial markets and prevent the US economy from stalling, but the outlook has been muddled by sturdy inflation.
On Monday Goldman Sachs in a note recommended a sell order for banking giant Citigroup, citing an expected 15 billion-dollar write-down in its next fiscal quarter due to its exposure to the subprime mortgage crisis.
"This news exacerbated fears that business performance is starting to feel the impact of the housing fallout, which in turn is raising concern on the direction of the US economy," said Yano from Tokai Tokyo Securities.
"The September cut was to boost investor confidence. But now the situation is a little different. Now more needs to be done to prevent a slowdown," he said.
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