Asian shares were mostly higher Monday following a rally on Wall Street though caution about a U.S. government plan to buy toxic debt from the financial sector was limiting the gains.

China’s share market had added to Friday’s surge with another large gain. The rises elsewhere in Asia were more modest, with Japan adding 1.9% and Korea, 0.5%. Hong Kong’s Hang Seng Index had given back an early gain to be down 0.1%.

U.S. stock futures were quoted lower in screen trade, suggesting a potential cold shower for the market there later; Dow Jones Industrial Average futures were down 120 points after the DJIA gained a total of 7.3% over the final two days of last week. The S&P 500 and Nasdaq 100 futures were both down 0.9%.

The U.S. dollar had fallen against the Japanese yen and the euro as questions grew about how the U.S. government would finance its large bailout of the country’s financial sector.

Investors were closely watching but did not immediately react to news that the Federal Reserve has approved the transformation of Morgan Stanley and Goldman Sachs from investment banks to traditional bank holding companies. The move would put them under the close supervision of national bank regulators, subjecting them to new capital requirements and additional oversight, but would also offer the banks and their customers greater protection and greater access to government liquidity measures.

The move “at least eliminates a risk of (another) near-term bankruptcy like Lehman Brothers,” said Yuji Saito, head of the FX Group at Societe Generale, adding the transition wouldn’t be easy, and could mean big changes to their business model.

The focus was more broadly on the U.S. Treasury’s $700-billion bailout plan for the financial sector and the purchase of toxic debt from financial institutions.

JP Morgan analysts said: “The speed with which policymakers in the U.S. have moved offers hope that the risks to the financial system may now be genuinely fading.”

Still, First NZ Capital director of research Barry Lindsay added “the issues are deep seated and what we are seeing could be just a relief rally.”

“At the end of the day, share prices require growth in earnings, stronger economic growth and the like, so there’s so many things to consider before we can say the markets are set for a sustained recovery.”

Japan’s market was off a high of 12,263.95, at 12,156.90 by the end of the morning session. “Many players think that it would be hard for U.S. stocks to rise for a third straight session (later), given the size of gains in the past two sessions,” said Yutaka Miura, senior technical analyst at Shinko Securities.

Financial stocks were still higher with Sumitomo Mitsui Financial Group up 5.5%. That was the case also in Korea, with Kookmin Bank up 4.8%, Shinhan Financial up 3.9% and Mirae Asset Securities adding 1.6%.

Australia’s S&P/ASX 200 was 3.6% higher with National Australia Bank up 5.2%, ANZ up 6.1%, Macquarie Group up 10%, and AMP up 5.4% amid restrictions on short-selling activity.

Taiwan’s index was 1.1% higher with the Straits Times Index in Singapore adding 1.2% and the New Zealand’s NZX-50 2.8%.

In China, the Shanghai Composite Index, which gained nearly 10% on Friday, added another 5.9%, though the market was off its early highs.

Sentiment was still helped by moves late Thursday by authorities to prop up the market.

Bank of China was limit-up by 10%, as was China Construction Bank.

Currency market investors were awaiting further details of the Treasury’s financial sector bailout plan. It remained unclear if foreign banks with operations in the U.S. would be included, among other things, but already concern was growing about the fiscal implications.

“The bailout will help financial markets globally but be paid for by U.S. taxpayers, which would argue for it being dollar negative,” said nabCapital senior currency strategist John Kyriakopoulos.

The dollar was slightly weaker against the Japanese yen and the euro in Asia, around Y106.54 from Y107.25 late in New York on Friday. The euro was at $1.4511 compared with $1.4480.

Both the Australian and New Zealand dollars were supported against the U.S. unit, while rising Asian shares were supporting regional currencies.

Lead Japanese government bond futures were down just 0.06 at 136.96, despite a large fall in U.S. Treasurys on Friday.

“I think the selloff in the U.S. Treasury market is attributable to the massive expected issuance (to pay for bailout plan) as well as higher inflation expectations. But if we think about the uniqueness of the U.S. situation, it doesn’t really affect the JGB market,” said Credit Suisse strategist Kenro Kawano.

“In Japan I think the JGB market should be well supported given the worsening growth picture.”

10-year U.S. Treasurys were a little higher with the note up 8/32 at 101 29/32, yielding 3.765%.

Spot gold, meanwhile, was 45 cents lower from late in New York, at $871.35 per troy ounce. Front-month Nymex crude was 9 cents higher on Globex at $104.63 a barrel.

Source: http://www.djnewswires.com/eu

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