Stocks rally on Fed action, kiwi slides

By Ian Chua

HONG KONG (Reuters) - Asian stocks rose more than 4 percent on Monday, surging after the U.S. Federal Reserve slashed a key U.S. bank lending rate, but ongoing caution weighed on high-yielding currencies such the New Zealand dollar.

Pan-Asian indexes were heading for their biggest daily gain in about nine years following last week's pounding, putting safe-haven government bonds and the yen under pressure.

But the high-yielding kiwi was also under pressure, tumbling 2 percent against the dollar and the yen, suggesting there were still pockets of nervousness about risks to global growth as a result of tighter credit markets.

To help counter the credit market turmoil, the U.S. central bank cut its discount rate by a half-percentage point to 5.75 percent on Friday in a surprise move that sparked a rebound on Wall Street. It left its benchmark federal funds rate steady at 5.25 percent.

The Fed also said "downside risks to growth have increased appreciably," dropping its views about inflation being a major concern and signalling a willingness to take more dramatic action to cushion the economy from tightening credit.

"With the Fed now pulling out all stops in order to head off a credit crunch, it's looking increasingly likely that we have seen the bottom in share markets," said Shane Oliver, head of investment strategy at AMP Capital Investors in Australia.

"More importantly the panic selling in various markets over the last week is indicative of the sort of wash out often seen at or around market bottoms."

MSCI's measure of Asia Pacific stocks excluding Japan rose 4.7 percent by 0440 GMT, heading for its biggest one-day percentage rise since late 1998.