They said that news of a bigger-than-expected drop in new US home sales had raised expectations that the Federal Reserve will cut rates again on Wednesday, following last week's surprise emergency cut.

US President George W. Bush's last State of the Union address had little impact on markets as he did not unveil any bold new proposals to try to ease the fallout on the US economy of a housing slump and credit crunch, they added.

Asian markets clawed back some of Monday's heavy losses but persistent worries about the outlook for the US economy limited the rebound.

Dealers took their cue from Wall Street where the Dow Jones rose 1.45 per cent on Monday after the government said that sales of new US homes fell 4.7 per cent in December while 2007 new home sales dropped by a record 26.4 per cent.

While the figures raised concerns about the health of the US economy, Wall Street responded positively as the data strengthened market expectations that the Fed will cut rates by up to 50 basis points Wednesday, dealers said.

'The rate cuts will provide a strong psychological support for the stock market,' said Peter Lai, director at DBS Vickers in Hong Kong.

'It will help ease fears that the US economy will be in recession. I don't think the US economy will be in a recession. Maybe just a slowdown in growth.'

With most analysts predicting the Fed will trim at least a quarter point off its base federal funds interest rate, currently pegged at 3.50 per cent, on Wednesday, there is a risk of disappointment if it does not act, dealers said.

A further rate cut in the US could temporarily boost investor sentiment, but it would also underscore the severity of the US economic slowdown, said Goh Mou Lih, Westcomb Securities research head.

'It just shows how bad the US economy is,' Mr Goh said.

But not all markets joined the rally. Sydney, which was closed on Monday, lost 2.5 per cent as investors caught up with events on other global markets, while Wellington shed 0.17 percent.

'Everyone's sitting in the trenches at the moment. I think the market is very nervous because they want to see it settle before everyone pours their money into it,' said Ms Lucinda Chan, division director at Macquarie Equities in Sydney.

A surprise 75 basis point Fed rate cut last week helped calm the markets.

But it also raised jitters about why the central bank felt the need to make such a radical move.

The Fed has been cutting rates since September after large banks began divulging hefty losses from ailing mortgage investments, triggering a credit crunch that has sparked fears of a recession in the world's largest economy.

World oil prices fell slightly in Asian trade, reversing early gains amid concerns that crude demand may be hit by a US-led economic slowdown, dealers said.

Gold continued to shine with prices at record high levels, benefitting from its perceived status as a safe haven during times of economic upheaval, while the dollar was mixed against other major currencies.

SINGAPORE
Singapore stocks closed higher at midday with the benchmark Straits Times Index up 27.48 points, or 0.90 per cent, at 3,068.54.

Up to 784.8 million shares exchanged hands. Gainers beat losers 346 to 232.

KUALA LUMPUR
Malaysian share prices closed 0.6 percent higher on Tuesday following Wall Street?s rebound overnight on hopes the Federal Reserve will cut interest rates again this week, dealers said.

The Kuala Lumpur Composite Index (KLCI) was up 7.96 points at 1,388.50, off a high of 1,394.41.

HONG KONG
Share prices closed higher on Tuesday, up 1.0 per cent, led by property stocks on hopes the US Federal Reserve will announce an interest rate cut this week, dealers said.

The Hang Seng index closed up 238.19 points at 24,291.80, off a low of 24,229.14 and a high of 24,736.80. Turnover was 92.63 billion Hong Kong dollars (11.86 billion US).

The Fed will begin on Tuesday a two-day policy meeting which is expected to deliver another 25-50 basis points cut in the benchmark US rate after a surprise three-quarter point cut last week.

The move normally provokes a similar cut here, as the local currency is pegged to the greenback.

Dealers noted that while the mood was generally positive, investors refrained from aggressive buying ahead of the rate decision and key US economic data, including jobs data on Friday.

The market also came off the day's highs as the Shanghai bourse managed only a mild rebound despite tumbling 7.2 per cent on Monday.

China coal firms extended Monday's gains as severe snowstorms on the mainland led to increased demand for heating coal and supply requirements.

Semiconductor Manufacturing International Corp (SMIC) was up more than 3.0 per cent ahead of its fourth-quarter results announcement.

Among other stocks, exporter Li and Fung surged 5.7 per cent after recent falls triggered by US demand concerns, while PC maker Lenovo was up 3.5 per cent ahead of its third-quarter to December results announcement on Wednesday.

SHANGHAI
Chinese share prices closed 0.87 per cent higher on Tuesday after a plunge the previous day, with sentiment soothed a little by an overnight rally on Wall Street, dealers said.

The US rise, driven by expectations that the Federal Reserve will cut interest rates again this week, had helped Asian markets generally, they added.

The benchmark Shanghai Composite index, which covers both A and B shares, closed up 38.65 points to 4,457.94 on turnover of 79.56 billion yuan (S$15.46 billion).

TOKYO
Japanese share prices closed up almost 3.0 per cent on Tuesday, lifted by an overnight rebound on Wall Street on the back of hopes of another US interest rate cut this week, dealers said.

They said news of a bigger-than-expected drop in December sales of new homes in the United States had raised expectations that the Federal Reserve will cut rates again at the end of a two-day meeting on Wednesday.

The Tokyo Stock Exchange's benchmark Nikkei-225 index ended up 390.95 points, or 2.99 per cent, at 13,478.86. -- AFP, REUTERS