Strong hints from two Federal Reserve officials that United States interest rates could be cut by as much as 50 basis points later this month sent regional markets heading north yesterday.
The Straits Times Index (STI) gained 0.5 per cent or 16.91 points to 3,377.96, leaving it up 0.6 per cent on the week.
The Nikkei added 2 per cent while South Korea put on 1.35 per cent.
The rally was driven in part by New York Fed president John Williams, who said his estimate of the US neutral rate is around 0.5 per cent, adding that "it's better to take preventative measures than to wait for disaster to unfold".
The dovish tone was reinforced on Thursday by Fed vice-chairman Richard Clarida: "You don't have to wait until things get so bad to have a dramatic series of rate cuts. You don't want to wait until data turns decisively if you can afford to."
Turnover here came in at 1.48 billion shares worth $1.11 billion with gainers outpacing losers 244 to 168.
Penny stocks topped active counters, led by mechanical and electrical engineering firm Libra Group with turnover of 74.1 million as it gained 93 per cent to 5.2 cents a share. Medtech firm QT Vascular followed with 61.8 million shares traded and a gain of 50 per cent to 0.6 cent each.
The top STI constituent was Venture Corp, up 3.32 per cent to $15.54 a share, after TSMC released better-than-expected earnings for the second quarter. CMC Markets analyst Margaret Yang said: "This fuelled the hope of a potential turnaround in the semiconductor industry, as TSMC is viewed to be a bellwether for the health of the global electronics industry."
Sats was the worst-performing counter after posting a 14.4 per cent drop in first-quarter net profit on Thursday, citing the weak global economy. It lost 6.02 per cent to $5 a share with 14 million shares traded.
Despite yesterday's market excitement, dovishness from the Fed is unlikely to drive a sustainable rally in the longer term, said Mr Ariel Bezalel, head of strategy, fixed income at Jupiter Asset Management in a note yesterday.
"The Fed has very little ammunition left to stimulate the economy," he said, noting that multiple macro and market indicators point to a looming recession, and the Fed is dealing with a huge balance sheet and interest rates close to historic lows at 2.25 per cent to 2.5 per cent.
"Bear in mind that in post-war history, on average the Fed has cut rates by about 4.5 per cent in the face of a downturn," he added.
