Asian stocks rose to a two-month high on Monday and high-yielding currencies advanced on the yen after details of a U.S. plan to rid banks of up to $1 trillion in toxic assets bolstered confidence in risk taking.
The White House said it would put as much as $100 billion into a bailout fund and give attractive financing to private investors to buy highly illiquid assets from banks, prompting dealers to dive back into equities and trim their holdings of safe haven assets like U.S. Treasuries.
Major European stock market futures rose more than 1 percent, indicating higher openings, while U.S. stock market futures were up 2 percent as a wave of optimism spread.
Still, doubts lingered, with the U.S. housing market showing few signs of bottoming yet, uncertainty over how the bad debts will be priced and concerns whether more borrowing by over indebted households is the solution to a credit crisis.
If the U.S. authorities actually succeed in buying up to $1 trillion of 'toxic assets', it would be considered a significant step by the financial markets. However, the markets will be disappointed if the programs did not move forward due to problems regarding how the assets' value is measured, said Mamoru Yamazaki, chief economist with RBS Securities in Tokyo.
The Nikkei share average <.N225> ended 3.4 percent higher, closing at the highest level since late January, getting the biggest boost from technology shares.
Shares in Japan's big banks outperformed. Mizuho Financial Group <8411.T> rose 5.3 percent and Mitsubishi UFJ Financial Group <8306.T>, the country's biggest bank, gained 4.7 percent. MUFG said earlier it would cut 1,000 jobs.
The MSCI index <.MIAPJ0000PUS> of Asia Pacific stocks outside Japan was up 4 percent, hitting a two-month high, supported mostly by the energy, financial and materials sectors.
Hong Kong's Hang Seng index <.HSI> rose 3.4 percent, led by a 5.3 percent gain in China Construction Bank <0939.HK>. Index heavyweight HSBC <0005.HK> slipped 2.5 percent as its deeply discounted rights shares begin trading on Monday.
Details of the U.S. toxic debt plan, which slowly emerged through newspaper reports over the weekend, extended a global stock market rally that has lasted nearly two weeks on hopes the financial system was stabilizing after some of the largest U.S. banks said they had solid results in the first two months of the year.
MORE DETAILS, MORE QUESTIONS
Removing bad loans from the balance sheets of U.S. banks, which have kept financial institutions from lending more, has been viewed by economists as essential before a recovery could begin.
The details on Monday took away some of the mystique as to how the U.S. Treasury Department would get that done.
However, questions lingered as to whether this plan was the antidote to the monstrous problem that has ultimately sucked the global economy into recession.
The key to the success of all these initiatives is the ability and willingness of corporations and U.S. households to borrow. Households, especially, are still over-leveraged. The solution to that is to save more out of current income and use the savings to repay debt. But, lower interest rates incentivize borrowings and not savings, said V. Ananthan-Nageswaren, chief investment officer, Asia Pacific with Julius Baer in Hong Kong.
For now at least, investors were given the green light to venture back into riskier assets.
Currencies that were sold off heavily during the most violent periods of market volatility performed well. The Australian dollar rose more than 1 percent to around $0.6980, a two-month high, and sterling strengthened by 1 percent to $1.4565.
The euro hit a five-month high against the yen, near 132 yen, following remarks by European Central Bank President Jean-Claude Trichet underscoring that rates were already at low levels and that the central bank may turn to unconventional measures to shore up the banking system.
U.S. Treasuries were under pressure as stock markets picked up momentum. The yield on the benchmark 10-year Treasury note ticked up to 2.67 percent, up from around 2.65 percent late on Friday in New York.
The 10-year yield has retraced about a quarter of the decline suffered after the Federal Reserve last week stunned markets by saying it would buy about $1 trillion of long-term securities from the market, including $300 billion of Treasuries.
U.S. crude futures rose over 1 percent toward $53 a barrel on Monday, bolstered by expectations that the U.S. Treasury's efforts to stabilize the ailing financial system would speed up a recovery in the U.S. economy.