Weekly Roundup: Asian Markets Rally As Fed Announces QE3

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A man looks at a stock quotation board outside a brokerage in Tokyo
A man looks at a stock quotation board outside a brokerage in Tokyo December 12, 2011.

Most of the Asian markets gained in the week as investor confidence was lifted following the announcement of another round of quantitative easing by the U.S. Federal Reserve which is expected to rejuvenate the economic growth.

Japan's Nikkei 225 Stock Average gained 3.2 percent and closed at 9159.39. South Korea's Kospi Index advanced 4 percent and closed at 2007.58. Market confidence was buoyed as the Fed announced Thursday an open-ended QE3 which focuses on the mortgage-backed securities purchases to revive the economy.

The Fed extended its conditional commitment to leave its policy rate at near-zero until mid-2015. This gave the signal to the markets that the Fed didn't intend to withdraw its accommodative policy stance any time soon.

Investor sentiment turned positives as the Fed confirmed that it would purchase $40 billion in agency mortgage-backed securities per month and no end date or dollar limit was placed on the program. Market participants cheered to note that the indication was that the Fed would keep purchasing the mortgage-backed securities until the labor market outlook improved sufficiently.

The Fed stated that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens." However, analysts do have doubts if this move will be sufficient to bolster the economic growth.

India's BSE Sensex climbed 4 percent and closed at 18464.27. The data released by the government of India Friday showed that the wholesale price index rose to 7.55 percent in August up from 6.9 percent in July dashing investor hopes of any rate cut by India's central bank. The inflation is expected to rise further with 14 percent diesel price hike announced by the Indian government Thursday.

Hong Kong's Hang Seng Index rose 4.22 percent and closed at 20629.78. China's Shanghai Composite Index fell 0.2 percent and closed at 2123.85.

Investors remained hopeful that stimulus measures would be announced by China to boost its economy as its industrial production growth rate slowed down in August compared to that in the previous month. The data released Sunday by the National Bureau of Statistics showed that China's industrial production rose 8.9 percent in August compared to that in the same month last year, down from the 9.2 percent increase in July.

China reported a trade surplus of $26.66 billion in August amid the slower-than-expected growth in exports and imports, raising the concern that the world's second largest economy was not doing enough to stimulate the economy and avert a slowdown.

Meanwhile, the optimism shown initially by investors about the ECB's willingness to make "unlimited" government bond purchases to calm the situation in Spain began to fade. The Outright Monetary Transactions (OMT) program outlined by the ECB is primarily designed to help the larger euro zone economies such as Spain and Italy.

But the market players do have worries about other economies, especially Greece. The main worry is that Greece does not currently meet the ECB's criteria that countries needing help must be meeting the fiscal conditions set out in the bailout packages.

Major Gainers: Shares of Sony Corp climbed 8.3 percent. Shares of Samsung Electronics Ltd gained 6.9 percent and those of Li & Fung Ltd advanced 5.9 percent.

Week Ahead: Markets are expected to retain the optimism on the Fed's announcement of quantitative easing measures. 

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