The South Korean stock market on Tuesday extended its winning streak to three sessions, collecting 60 points or 5.6 percent along the way. The KOSPI broke through resistance at 1,200 points, but investors are expecting the market to hand that level right back at the opening of trade on Wednesday.
The global forecast for the Asian markets calls for a correction to the downside in the form of profit taking as many of the regional bourses are riding moderate winning streaks and have posted sizeable gains in recent weeks. The financials in particular have risen sharply in the last week and could be ripe for some selling pressure. The European markets ended the trading day mixed, while the U.S. markets all finished lower - and the Asian bourses are tipped to follow suit.
The KOSPI finished sharply higher again on Tuesday, with positive sentiment generated by the announcement of further economic stimulus. The financials continued their recent rally, while the technology issues and the shipbuilders also ended higher.
For the day, the index jumped 22.20 points or 1.9 percent to close at 1,221.70 after trading between 1,205.08 and 1,225.94. Volume was 505 million shares worth 5.8 trillion won. There were 521 gainers and 287 decliners, with 79 stocks finishing unchanged.
Among the gainers, Woori Finance gained 2.41 percent, while Shinhan Financial Group advanced 3.61 percent, KB Financial Group was up 4.63 percent, Samsung Electronics rose 1.82 percent, Hynix Semiconductor added 0.97 percent, LG Electronics gained 3.60 percent, LG Display moved up 2.04 percent, Hyundai Heavy Industries advanced 1.23 percent, Samsung Heavy Industries gained 1.90 percent, Daewoo Shipbuilding rose 2.97 percent, SK Holdings gained 4.33 percent and S-Oil rose 1.37 percent.
The lead from Wall Street has cooled as stocks moved back to the downside going into the close of trading on Tuesday after failing to sustain an afternoon recovery attempt. The major averages all ended the day firmly in negative territory, partly offsetting the standout gains posted in the previous session. While profit taking contributed to some weakness in the markets, selling pressure remained relatively subdued, helping the major averages to hold onto the bulk of Monday's gains.
For much of the session, traders were keeping a close eye on Capitol Hill, with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner testifying before the House Financial Services Committee. During his testimony, Geithner said the near-collapse of AIG (AIG) highlights broad failures of the U.S. financial system, and he pledged to work on improving the regulatory structure in order to prevent another similar situation.
I share the anger and frustration of the American people, not just about the compensation practices at AIG and in other parts of our financial system, but that our system permitted a scale of risk-taking that has caused grave damage to the fortunes of all Americans, Geithner said.
Bernanke added that the bonuses paid to employees of AIG were highly inappropriate. At the same time, Bernanke outlined the reasoning behind the government's repeated interventions to prop up AIG despite severe mismanagement within the embattled insurance giant. The Fed Chairman noted that AIG must scrupulously avoid any excessive and unwarranted compensation.
We have pressed AIG to ensure that all compensation decisions are covered by robust corporate governance, including internal review, review by the Compensation Committee of the Board of Directors, and consultations with outside experts, Bernanke said.
However, the attacks on AIG have pushed other financial groups to work to return government funds as soon as possible. According to the Wall Street Journal, Goldman Sachs (GS) may sell its stake in the Industrial and Commercial Bank of China to help it repay the $10 billion it received under the TARP.
The major averages pulled back to new lows for the session in late-day trading, although they ended the session just off their worst levels. The Dow closed down 115.65 points or 1.5 percent at 7,660.21, the Nasdaq closed down 37.34 points or 2.4 percent at 1,518.43 and the S&P 500 closed down 16.58 points or 2 percent at 806.34.
In economic news, the South Korean government said on Tuesday it is submitting an extra budget that contains nearly 18 trillion won or US$13 billion in economic stimulus moves. The finance ministry said the plan is expected to improve economic growth by 1.5 percent and create more than a half million new jobs. The package is part of a 28.9 trillion won extra budget, which includes 11.2 trillion won in funds for previously announced projects.
Also, South Korea and the European Union reached a tentative trade agreement. Both parties are expected to finalize the deal in a meeting of trade ministers' on April 2. South Korea and the EU started free trade agreement negotiations in May 2007.
Finally, the Minister for Knowledge Economy stated that, based on the preliminary report from the Korea Customs Service, trade surplus for March is likely to reach $4.5 billion, due to a much sharper decline in imports than in exports during the first 20 days of the month.
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