HONG KONG - 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 per cent 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 extended losses to close down 5 per cent after the decision.

European stocks were set to open as much as 1.5 per cent higher, according to financial bookmakers, helped by optimism about the cushioning impact of recent rate cuts.

Oil prices dropped nearly US$2 (S$2.96) a barrel after data on Thursday showed the US 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 per cent 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 Mr Tomomi Yamashita, a fund manager at Shinkin Asset Management.

Weekly gain, monthly fall
The MSCI index of Asian stocks outside Japan fell 0.6 per cent by 0640 GMT (2.40pm Singapore time).

The index is up 13 per cent this week, its biggest weekly gain on record but is still down some 24 per cent for the month and about 54 per cent for the year.

Japan's Nikkei hit a 26-year low this week but rallied as much as 30 per cent in a three-day surge to Thursday.

Shares in South Korea gained 2.6 per cent, while Taiwan surged 4 per cent, and India added 7 per cent.

Markets in Singapore and Australia posted smaller gains, while shares in Hong Kong and Shanghai fell amid profit-taking and concerns over earnings.

The focus of policy makers worldwide has shifted from stabilising 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. US crude futures were headed to their worst monthly loss ever after slumping US$1.7 to US$64.24 a barrel on Friday, less than half the record near US$150 it had hit in July.

Platinum dropped to US$770 an ounce, down from the notional New York close of US$817. The metal had hit a life-time high of US$2,290 in March.

KUALA LUMPUR
Share prices on Bursa Malaysia closed higher today, supported by bargain hunting in selected bluechips, dealers said.

They said the higher overnight close on Wall Street had encouraged buying interest in the local market.

'Investors' sentiment was boosted by the rally on Wall Street overnight. Follow-through buying by domestic institutional investors on bluechips helped the key index to finish the day in positive note,' a dealer said.

At 5 pm, the Kuala Lumpur Composite Index (KLCI) gained 10.05 points or 1.18 percent to 863.61. It had opened lower by 4.96 points at 848.60.

The Industrial Index increased 18.46 points to 2,085.64, the Finance Index gained 62.69 points to 6,618.56 and the Plantation Index added 36.54 points to 3,556.95.

The FBMEmas rose 55.12 points to 5,651.19 and the FBM30 gained 79.81 points to 5,642.91.

However, the FBM2BRD declined 10.62 points to 4,243.88 and the FBMMesdaq Index eased 13.69 points to 3,305.70.

Gainers led losers by 380 to 265 while 198 counters were unchanged, 491 untraded and 28 others suspended.

Volume however declined to 810.223 million shares valued at RM1.300 billion (S$543 million) from 973.008 million shares valued at RM1.392 billion yesterday.

HONG KONG
Hong Kong shares closed 2.5 per cent lower on Friday, led by a decline in property and financial stocks as local banks kept rates unchanged, despite the US move to cut rates, dealers said.

The benchmark Hang Seng Index was off 361.18 points to 13,968.67. Turnover was 58.47 billion Hong Kong dollars (S$11.13 billion).

Heavy weight HSBC fell 3.56 per cent and Bank of East Asia dropped 8.26 per cent.

SHANGHAI
Chinese share prices closed down 1.97 per cent on Friday as investors' concerns about a domestic economic slowdown deepened after more companies posted weak third quarter earnings, dealers said.

The benchmark Shanghai Composite Index, which covers A and B shares, fell 34.82 points to 1,728.79 on turnover of 25.2 billion yuan (S$5.49 billion).

The Shanghai A-share index lost 36.66 points, or 1.98 per cent, to 1,816.31 on turnover of 25.1 billion yuan, while the Shenzhen A-share index shed 7.20 points, or 1.43 per cent, to 495.22 on turnover of 10.0 billion yuan.

TOKYO
Tokyo's Nikkei stock index closed down 5.01 per cent on Friday, despite the first interest rate cut by the Bank of Japan in seven years to support the ailing economy.

The benchmark ended 452.78 points lower at 8,576.98 after a late flurry of selling ahead of a long weekend. The sharp drop came despite the central bank's decision to lower its key lending rate by 20 basis points to 0.3 per cent.

Many investors had been hoping for a slightly bigger cut of 25 basis points.

Analysts said the move was likely to have a limited impact on Asia's largest economy, which already has very low borrowing costs. -- BERNAMA, AFP, THOMSON REUTERS