HONG KONG- ASIAN stock markets gained modestly on Thursday as expectations grew that Japan would soon cut interest rates to support its contracting economy and crude oil prices sank to 4 1/2-year lows.

Most markets were marked by slim, uneven trade after Wall Street dipped overnight as early enthusiasm about the Federal Reserve's historic rate cut gave way to concerns that a turnaround in the US economy was still far off.

In Tokyo, the Nikkei 225 stock average climbed 54.71 points, or 0.6 per cent, to 8,667.23 after flitting in and out of negative territory in morning trading. Hong Kong's Hang Seng Index recovered near the end of the session to add 0.2 per cent to 15,497.81.

Benchmarks in Australia, South Korea, Singapore and mainland China also advanced.

The dollar recovered slightly from 13-year lows against the yen but continued to slide against the euro.

Asia's markets have shown surprising strength since rebounding from last month's sell-off, though some analysts were skeptical that the upswing would last.

'This is not the start of a bull market, it's still a bear market rally,' said Mr Francis Lun, general manager of Fulbright Securities Ltd. 'The economy is still in the doldrums, and I think people are thinking the zero interest rate policy is due to a long recession ahead.'

The US rate cut has raised expectations the Bank of Japan will follow suit and slash its key rate to nearly zero when it wraps up a two-day meeting on Friday. Goldman Sachs predicts the bank will shave its overnight call rate target from the current 0.3 per cent to 0.15 per cent, while JP Morgan forecasts a cut to 0.1 per cent.

Financials gained on the speculation, with Mizuho Financial Group Inc. jumping 8.1 per cent and Sumitomo Mitsui Financial Group Inc. gaining 8.5 per cent.

Meanwhile, Honda dropped 3.4 per cent a day after Japan's No. 2 carmaker said it was slashing its annual profit forecast due to the global slowdown.

Oil prices, meanwhile, edged up from 4 1/2 lows as investor pessimism over global crude demand outweighed Opec's largest-ever production cut. The January contract fell as low as US$39.19 (S$56.30) - a level not seen since at least July 2004 - before recovering some to $40.70 a barrel in Asian trade, up 64 cents from the New York close.

Energy firms took a beating on crumbling crude prices. Chinese upstream oil producer CNOOC Inc. and Australia's Woodside Petroleum both dived more than 6 per cent.

In China, a new stimulus package unveiled Wednesday to boost the country's slumping real estate market lifted shares in property firms. China Overseas and China Resources rose more than 2 per cent in Hong Kong trade.

Overnight in New York, the Dow Jones industrial average lost 99.80, or 1.12 per cent, to 8,824.34, after falling as many as 146 points earlier in the session. The Standard & Poor's 500 index slipped 8.76, or 0.96 per cent, to 904.4.

Futures pointed to a rebound on Thursday on Wall Street. Dow futures were up 50 points, or 0.6 per cent, to 8,850, while S&P futures were up 3 points, or 0.3 per cent, to 905.5.

The yen leveled off after a dramatic surge against the dollar, as Japan warned of possible intervention in the foreign exchange market. The dollar, which hit a 13-year low on Wednesday, traded at 87.89 yen, up from 87.21 earlier. The euro rose to $1.4455 from $1.4400.

Finance Minister Shoichi Nakagawa told reporters he would 'implement appropriate measures' regarding the yen's gains, which erodes exporters' foreign income.

'For export manufacturers the acceleration of the strong yen is a negative factor,' he said.

KUALA LUMPUR
Malaysian shares closed 2.1 per cent higher on Thursday due to window-dressing in index-linked blue chip stocks by local institutional funds, dealers said.

Dealers also said the ringgit's rise against the dollar acted as a catalyst, attracting a fresh inflow of foreign portfolio funds, a dealer with a bank-backed brokerage told Dow Jones Newswires.

The ringgit was at 3.4780 in late trade from Wednesday's close at 3.5280.

The Kuala Lumpur Composite Index gained 15.0 points to close the day at 880.50.

Volume was modest at 503.44 million shares valued at 804.95 million ringgit (S$331.7 million). Gainers outpaced decliners 397 to 121.

'Both foreign and local funds were net buyers today. Buying interest was triggered by government-linked funds and this quickly gained momentum as retail investors also jumped on the bandwagon,' the dealer said.

Among gainers, plantation stocks posted healthy gains as funds are heavily exposed to the sector. IOI Corp rose 9.7 per cent to 3.62 ringgit, Sime Darby added 2.7 per cent to 5.65 and Kuala Lumpur Kepong climbed 4.1 per cent to 9.00.

On the downside, MESDAQ debutante Fibon failed to impress, declining 5.3 per cent to 80 sen as short-term investors sold off part of their pre-listing bonus share issues.

Dividend plays also faced some selling pressure with the return of risk appetite, with British American Tobacco slipping 2.8 per cent to 43.75 ringgit and Carlsberg shedding 1.7 per cent at 3.52.

TOKYO
Japanese share prices closed 0.64 per cent higher on Thursday on rising expectations the central bank will cut interest rates in a bid to shore up the world's second largest economy, dealers said.

The market clawed back up after briefly slipping into negative territory in late trade on concerns over the soaring yen, which is seen as sapping exporters' earnings in an already bleak economic climate.

The Tokyo Stock Exchange's benchmark Nikkei-225 index rose 54.71 points to close at 8,667.23.

The broader Topix index of all first-section shares eked out a marginal gain of 0.23 points or 0.03 per cent to finish at 838.69.

HONG KONG
Hong Kong share prices closed 0.2 per cent higher on Thursday, as heavyweight HSBC dragged down the main index on worries over whether it needs to raise extra capital, dealers said.

The benchmark Hang Seng Index closed up 37.29 points at 15,497.91. Turnover was 52.26 billion Hong Kong dollars (S$9.63 billion).

Shares in HSBC were down more than 3 percent during the day, after reports said the bank may need to raise US$14 billion (S$20.13 billion) to boost its capital.

SHANGHAI
Chinese shares closed up 1.97 per cent on Thursday led by banks and property developers amid hopes for more government support, dealers said.

The benchmark Shanghai Composite Index, which covers A and B shares, rose 38.88 points to 2,015.69 on turnover of 64.9 billion yuan (S$13.7 billion).

The Shanghai A-share index added 40.81 points, or 1.97 per cent, to 2,116.74 on turnover of 64.8 billion yuan, while the Shenzhen A-share index was up 10.42 points, or 1.63 per cent, at 649.35 on turnover of 32.2 billion yuan. -- AFP, BERNAMA, AP