Japan eyes bank injections to counter crisis

By David Dolan

TOKYO (Reuters) - Japan is reportedly considering cash injections for scores of regional banks in an effort to encourage lending as the financial crisis creates havoc for companies and economies around the globe. A big cut in aluminium output from Alcoa Inc and bankruptcy protection filings by U.S. units of LyondellBasell, the world's third-largest petrochemical company, provided the latest evidence of the corporate struggle with the worst downturn in decades.

But despite the pervading gloom, investors piled into Asian stocks for an eighth straight session on hopes an array of stimulus packages and the cheap, ample supply of money from central banks will kick-start the global economy later this year.

MSCI's index of Asia-Pacific stocks excluding Japan rose 1.7 percent, heading for its longest winning streak since October 2007.

"Obviously market sentiment is improving despite the fundamentals of the global economy remaining weak," said Karen Lin, a fund manager of Paradigm Asset Management in Taiwan.

"This round of rebound is based on ample liquidity in the market, and it might continue the strong upward momentum if Wall Street doesn't return to its volatile movement seen last year."

Like other major economies, Japan has cut interest rates and promised to increase spending in an effort to drag itself out of recession, which is also gripping much of the developed world.

Tokyo's latest plan under consideration was to inject billions of dollars into 40 or more smaller lenders to boost their capital, a report in the Mainichi newspaper says.

That would make the banks more willing to lend out money, but senior government officials, speaking on the condition of anonymity, said Tokyo was not considering a broad injection of public funds.