Asian stocks followed Wall Street's overnight rally Wednesday and climbed as financials and Japanese exporters surged on tentative expectations that the worst of the U.S. credit crisis may have passed. The dollar continued to strengthen against the yen, but oil rose to around $101.50.

Markets in Hong Kong and Japan hit one-month highs. The Japanese Nikkei was the biggest beneficiary of the rally, rising 533 points, or 4.2%, to 13,189.36, representing the first time the index has been above 13,000 points since the end of February. The Hang Seng leapt 735 points, or 3.2%, to 23,872.43, and in China, the Shanghai Composite Index gained 19 points, or 0.6%, to 3347.88.

"The herd mentality is back again," says Bryan Watkins, a trader for Daiwa Bank in Hong Kong. "Among energy plays, there is a little short squeezing back en vogue in here. Buyers kept reloading here by 500 thousand shares, feeding the market into the close."

China Watch: Gushing Over Gushan

Martin Marnick, a director at Helmsman Global Trading in Hong Kong, says that the Hang Seng is likely to reach between 24,000 and 25,000 points before pulling back again once it encounters technical resistance.

Japanese financials leapt on renewed confidence in the U.S. banking sector, after Wall Street shrugged off news of more writedowns by UBS ( UBS) Tuesday. Kookmin Bank ( KB) surged 11.1%, to 64,200 yen, and Mizuho Financial ( MFG) soared 10.1%, to 404,000 yen. Mitsubishi UFJ ( MTU) gained 9.8%, to 982 yen.

A strengthening dollar helped exporters regain some of the sharp losses that befell them as the yen has traded through the 100 yen vs. dollar benchmark in recent weeks. The dollar was up by more than one yen, buying 102.38 yen by the end of the trading session. Honda ( HMC) motored ahead 7.4%, to 3110 yen, and Canon ( CAJ) snapped gains of 6%, to 4980 yen. Nintendo ( NTDOY) jumped 4.8%, to 54,600 yen, its highest closing level since the beginning of March.

In Hong Kong, negative consumer data was brushed aside in the momentum buying. Retail sales in February grew by 9.5%, to HK$22.8 billion ($2.9 billion), representing their slowest pace in 10 months. Analysts expected growth of 15.5%, down from 23.2% in January.

Among telcos, a proxy for Chinese consumption, China Mobile ( CHL) rose 3.4%, to HK$121.70, and China Unicom ( CHU) gained 2.2%, to HK$16.68. China Telecom ( CHA) was up 2%, at HK$4.99.

Other Hang Seng heavyweights also prevailed. PetroChina ( PTR) jumped 3.7%, to HK$10.20, and property giant Cheung Kong ( CHEUY) surged 4%, to HK$117.80. CNOOC ( CEO) leapt 3.5%, to HK$11.90, as traders stepped in to cover short positions after a bearish rally in the stock last week, when the stock began down 11% from the previous Friday.

Shares in mainland China were higher, but volume was weak and traders still expected Shanghai's index to fall to 3,000 points by the end of ext week. At that point, it is rumored that Beijing officials will slash the stamp duty, a form of tax levied on share purchases.

Sinopec Shanghai Petrochemical ( SHL) helped weigh down the index, falling 5%, to 8.88 yuan on higher crude prices. Aluminum Corp. of China ( ACH) rose 0.5%, to 18.89, still far off its performance in Hong Kong. The shares in Hong Kong were bid up 3.7%, to HK$13.34 in the rally.

There were some signs that Beijing is already taking action to refuel lagging mainland equity markets. Officials cited averting an economic slowdown as a new top priority late Tuesday, saying that while tackling inflation was important, the former now presents a risk.

The Chinese government said that "we should not only work to prevent the economy from overheating, but also work to prevent the economic slowdown," according to the South China Morning Post.

Elsewhere in Asia, markets fared well. Taiwan's Taiex surprised investors, and gained 2.2%, to 8605, and South Korea's Kospi jumped 2.4%, to 1742. In India, the Bombay Sensitive Index rose 0.8%, to 15,750, tracking China's weaker-than-average performance.


Be sure to check out the Far East Portfolio at Stockpickr.com to find out which Indian and Chinese companies are making big moves and announcing major news.
Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at www.theglobalperspective.biz. He lives in New York.

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