HONG KONG (Reuters) – Asian shares dipped on Friday and headed for their biggest ever monthly fall, but optimism that a new round of interest rate cuts may revive a comatose global economy helped many indexes keep their largest weekly gains on record.
The Bank of Japan cut interest rates to 0.3 percent on Friday, its first rate cut it seven years, but the move was smaller than expected and came after a split vote. The yen rose while Nikkei average (.N225) extended losses to close down 5 percent after the decision.
European stocks were set to open as much as 1.5 percent higher, according to financial bookmakers, helped by optimism about the cushioning impact of recent rate cuts.
Oil prices dropped nearly $2 a barrel after data on Thursday showed the U.S. economy suffered its sharpest contraction in seven years in the third quarter, as consumers cut spending and businesses reduced investment.
And prices for base metals continued to slide, with Shanghai copper down a record 41 percent this month alone, on persistent concerns the global economy faces a potentially severe and long recession.
Policy makers have responded by cutting rates and injecting liquidity, as well as adopting unprecedented rescues of their banking sectors. After weeks of erosion in investor sentiment, some analysts are now wondering whether the worst might now be behind, at least for now.
"There's a bit of a tug-of-war going on, since investor sentiment has changed slightly on the sense the market may have bottomed out for now, and people are willing to buy," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.
WEEKLY GAIN, MONTHLY FALL
The MSCI index of Asian stocks outside Japan (.MIAPJ0000PUS) fell 0.6 percent by 0640 GMT.
The index is up 13 percent this week, its biggest weekly gain on record but is still down some 24 percent for the month and about 54 percent for the year.
Japan's Nikkei hit a 26-year low this week but rallied as much as 30 percent in a three-day surge to Thursday.
Shares in South Korea (.KS11) gained 2.6 percent, while Taiwan (.TWII) surged 4 percent, and India added 7 percent.
Markets in Singapore (.FTSTI) and Australia (.AXJO) posted smaller gains, while shares in Hong Kong (.HSI) and Shanghai (.SSEC) fell amid profit-taking and concerns over earnings.
The focus of policy makers worldwide has shifted from stabilizing credit markets and providing funds to banks, to attempts at reviving their economies by cutting interest rates.
UNCERTAINTY REMAINS
But plenty of apprehension remained after the intensely volatile period in global markets following the collapse of Lehman Brothers in mid-September.
The yen extended its gains against the dollar on Friday after the Bank of Japan's action. The currency has been supported as investors unwind investments in risky assets that had been funded by borrowing the low-yielding yen.
The yen gained to around 97 yen after the decision was announced, up from around 98.40 yen.
Commodities, which are sensitive to global demand, continued to be routed. U.S. crude futures were headed to their worst monthly loss ever after slumping $1.7 to $64.24 a barrel on Friday, less than half the record near $150 it had hit in July.
Platinum dropped to $770 an ounce, down from the notional New York close of $817. The metal had hit a life-time high of $2,290 in March.
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