Bailout hopes buoy Japan's banks

JAPANESE stocks rallied to two-week highs as investors clung to hopes of concrete action on the economy, but Sydney's recent assault on record peaks was halted by disappointment over growing losses at media giant News Corp.

A warning that Moody's is set to downgrade Japan's credit rating was shrugged off by investors who are banking on hearing some plans for tackling deflation ahead of President George Bush's weekend talks with Prime Minister Junichiro Koizumi.

The Nikkei 225 nosed above 10,000 for the first time this month in early trading, but slipped to close at 9968.35 - a gain of 90.36 - after Koizumi refused to confirm reports that the Government would spend £21bn buying out the loss-making portfolios of big banks.

Japan's lack of action on chronic deflation forced a warning from Moody's that it may cut the credit rating by as much as two notches to Aa3, putting the country in the same league as emerging This followed a similar warning from Standard & Poor's last month.

While the yen reeled on Moody's alert, investors continued to snap up stocks of major banks on hopes that a deflation-fighting package from the Government would include the bailouts. Mizuho Holdings, the world's largest bank and the one that has most to lose from the crash in share prices that has hit its huge domestic stockholdings, led with a gain of 3.3%.

Slack trading on the US Nasdaq on Tuesday trimmed recent rises in the share prices of electronics manufacturers. Japan's top chip maker, NEC, fell almost 5% as analysts continued to downgrade it after it last month said losses had doubled.

Some faint hopes of a consumer revival lifted retail stocks. The stubborn refusal of Japanese householders to spend in the face of rising unemployment has accelerated the deflationary spiral, and sent several large store groups to the wall. A Reuters survey, showing that leading stores expected good New Year sales figures, was seen as a welcome straw in the cold wind, and stocks of top retailers Isetan and Daimaru added up to 3%.

After nudging record highs on Tuesday, Australian stocks were depressed by poor second-quarter earnings from News Corp. Slumping advertising revenue around the globe, and poor performances by its US sports channels, sent the group US$606m (£429m) into the red, and the shares dropped almost 3%, pulling the All Ordinaries index down 8.10 points to 3415.0. Chief executive Rupert Murdoch blamed the fall in US revenue on the reluctance of US advertisers to back baseball and American Football coverage.

The damage to the overall market was limited by good earnings figures from domestic-linked companies. Commonwealth Bank of Australia gained almost 2% after unveiling a 6% increase in interim profits, while building materials group Boral jumped nearly 5% on half-year earnings that matched analysts' forecasts.

Plans for a big clean-up in the balance of Krung Thai Bank inspired buying of financial stocks in Bangkok and the SET index responded with a 4.42 rise to 358.11.

Markets in Hong Kong, Taiwan, China, Korea, Singapore, Malaysia and Indonesia were closed for the Lunar New Year.

Prices and indices in this section are supplied from various sources and calculated at different times and may not always match those listed on the site.