Asian stocks soar on joint central bank action

Asian stock markets soared on Thursday after major central banks acted in concert to lower borrowing costs, hoping to prevent a global credit crisis similar to the one that followed the collapse of Lehman Brothers in 2008.

Japan's Nikkei 225 index rose 2.2 per cent to 8,619.26. South Korea's Kospi gained 3.7 per cent to 1,916.87 and Hong Kong's Hang Seng jumped 5.1 per cent to 18,902.57. Benchmarks in Australia, Singapore, Taiwan and mainland China all rose more than 2 per cent.

Wednesday's action by the central banks of Europe, the US, Britain, Canada, Japan and Switzerland reduces the rates banks must pay to borrow dollars. The move aims to make loans cheaper so that banks can continue to operate smoothly.

Separately, China's central bank on Wednesday reduced bank reserve levels to release money for lending and help shore up slowing growth.

Global central banks act to ease debt crisis

"The moves were cheered by markets, as it shows central banks are willing to work together to ease Europe's sovereign debt crisis," said Stan Shamu of IG Markets in Melbourne. "It seems China now thinks that slowing growth is more of a risk than inflation after cutting its reserve requirements for the first time since 2008."

Chinese banks soared on the news. Hong Kong-listed Industrial & Commercial Bank of China, the world's largest bank by market value, surged 7.7 per cent. Bank of China Ltd. jumped 7.5 per cent and Agricultural Bank of China, the country's largest rural lender, rose 7.4 per cent.

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Worries about Europe's financial system - and the reluctance of the European Central Bank to intervene - have caused borrowing rates for European nations to skyrocket. Central banks will now make it cheaper for commercial banks in their countries to borrow dollars, the dominant currency of trade.

But while it should ease borrowing for banks, it does little to solve the underlying problem of mountains of government debt in Europe, leaving markets still waiting for a permanent fix. European leaders gather next week for a summit on the debt crisis.

The move sent the Dow Jones industrial average soaring 490 points, its biggest gain since March 2009 and the seventh-largest of all time.

The Dow rose 4.2 per cent to close at 12,045. The Standard & Poor's 500 closed up 4.3 per cent at 1,247. The Nasdaq composite index closed up 4.2 per cent at 2,620.