Mitsubishi Estate Co. gained 10 percent in Tokyo as traders increased bets the Bank of Japan will reduce borrowing costs this week, while Sun Hung Kai Properties Ltd. added 4 percent in Hong Kong. Angang Steel Co. jumped 12 percent after China said it will boost reserves of raw materials. Honda Motor Co. fell 4.2 percent in Japan, where shares retreated from earlier highs on concern the yen’s advance to a 13-year high against the dollar will shrink exporters’ profits.

“This is a strong statement that the U.S. is doing all it can to support the market and prevent a sharp economic deterioration,” said Masahiko Ejiri, who manages Asian equities at Tokyo-based Mizuho Asset Management Co., which oversees $26 billion. “It’s also a sign that things are getting worse. There will be less room for them to maneuver from here.”

The MSCI Asia Pacific Index added 2.7 percent to 89.82 as of 7:22 p.m. in Tokyo, its highest close since Nov. 10. The gauge has rallied 19 percent since reaching a five-year low four weeks ago as governments from the U.S. to Australia took steps to buttress their economies from the worst financial crisis since the Great Depression.

Japan’s Nikkei 225 Stock Average gained 0.5 percent to 8,612.52. Hong Kong’s Hang Seng Index added 2.2 percent, led by a 4.2 percent advance in China Unicom (Hong Kong) Ltd. after the nation’s second-biggest mobile-phone carrier agreed to buy telecommunication assets from its parent.

Futures Drop

The Standard & Poor’s 500 Index rallied 5.1 percent yesterday after the Fed cut its target rate for overnight loans between banks to a range of zero to 0.25 percent. A senior Fed official indicated that the bank will now shift its policy focus to asset purchases as a means of providing liquidity. Futures on the S&P 500 Index fell 1.8 percent recently.

The Fed’s move came as simultaneous recessions in the U.S., Japan and Europe dragged global equity markets lower, with MSCI’s Asian index down 48 percent from its 2007 peak. Shares on the index trade at an average 12.6 times estimated earnings, a quarter less than the level at the start of the year.

In Japan, expectations the Bank of Japan will cut interest rates rose after the government urged the central bank to do more to support the economy.

Mitsubishi Estate soared 10 percent to 1,450 yen, while Mitsui Fudosan Co., the largest, added 4 percent to 1,342 yen. Sumitomo Mitsui Financial Group Inc., Japan’s third-largest bank, rallied 4.4 percent to 354,000 yen. Lower borrowing costs may increase the attractiveness of property to prospective buyers.

Rate Cut Likelihood

Investors see a 52 percent chance that the BOJ’s policy board will reduce the overnight call rate from 0.3 percent at this week’s meeting, according to calculations made by JPMorgan Chase & Co. based on interest-rate swaps trading, up from 20 percent yesterday morning. The meeting ends on Dec. 19.

Sun Hung Kai, Hong Kong’s largest developer by market value, added 4 percent to HK$68.70. Henderson Land Development Co. climbed 7.8 percent to HK$33.05.

The Hong Kong Monetary Authority lowered its base rate to 0.5 percent from 1.5 percent and asked lenders to follow suit to help prop up the economy. Movements in Hong Kong rates typically track U.S. credit policy because the city’s currency is pegged to the dollar.

“You can see that Hong Kong is reacting and Japan is under a lot of pressure to follow suit in cutting rates,” said Scott Lim, who helps manage the equivalent of $710 million as chief executive officer of MIDF Amanah Asset Management Sdn. in Kuala Lumpur. “The whole region will follow suit.”

Yen Advances

The Fed’s move drove the yen above 88.53 against the dollar for the first time since August 1995, as the rate cut made the greenback the lowest-yielding currency among industrialized nations. A higher yen shrinks repatriated profits for Japanese companies.

Honda, which gets more than half its sales in North America, fell 4.2 percent to 1,891 yen. After the market closed, Japan’s second-largest automaker cut its annual operating profit forecast to 180 billion yen ($2.03 billion) from its previous estimate of 550 billion yen. The Nikkei newspaper earlier said the carmaker would cut its goal to 300 billion yen.

Nissan Motor Co., the nation’s third-biggest automaker, lost 4.1 percent to 302 yen. The company will cut local production by 78,000 vehicles from next month.

China Reserves

Angang Steel, China’s second-largest steelmaker, surged 12 percent to HK$8.65. Zijin Mining Group Co., China’s biggest gold producer, surged 8 percent to HK$4.63. China Oilfield Services Ltd., a unit of the nation’s largest offshore oil producer, rallied 15 percent to HK$6.52.

China’s plan to bolster its materials inventories is among several measures to help the steel, metal and petroleum industries, which have suffered from losses as prices plunged, the Ministry of Industry and Information Technology said yesterday. It didn’t specify the materials to be purchased.

The government also said it will order banks to increase loans to developers of low-priced houses as well as ease ownership limits and lending caps, allowing owners of smaller- than-average apartments to buy a second apartment.

China Unicom climbed 4.2 percent to HK$10.46 after agreeing to buy fixed-line assets for 6.43 billion yuan ($940 million) from its state-owned shareholders. The acquisitions are part of a government plan to let carriers offer both wireless and landline services.

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Another benefit is paying China 0% on all the T-Bills they purchase Which if done and marketed correctly could possibly help the U.S start to pull out of our massive debt we currently owe to China and many of the oil nation coutries.

Investors are so nervous they’re willing to accept the same return from government debt that they’d get from burying money in a coffee can — zero.

The Treasury Department said Tuesday it had sold $30 billion in four-week bills at an interest rate of zero percent, the first time that’s happened since the government began issuing the notes in 2001.
And when investors traded their T-bills with each other, the yield sometimes went negative. That’s how extreme the market anxiety is: Some are willing to give up a little of their money just to park it in a relatively safe place.

“No one wants to run the risk of any accidents,” said Lou Crandall, chief economist at Wrightson ICAP, a research company that specializes in government finance. At last week’s government auction of the four-week bills, the interest rate was a slightly higher but still paltry 0.04 percent. Three-month T-bills auctioned by the government on Monday paid poorly, too — 0.005 percent.

While everyday people can keep their cash in an interest-earning CD or savings account at the bank, institutional investors with hundreds of millions of dollars on their hands often use government debt as part of their investment strategy. In the Treasury market, the U.S. government, considered the most creditworthy of borrowers, issues IOUs of varying durations to raise money.

The zero percent interest rate is no reason to panic. As recently as Monday, investors were plowing cash into stocks, and averages like the Dow industrials are off their lows. And long-term government bonds, while near record lows, are still paying decent money considering the tumultuous climate. The yield on a 30-year bond on Tuesday was a little higher than 3 percent.

There’s good news in all this for taxpayers: Low interest rates on government debt mean the United States is financing its $700 billion bailout of the financial system very cheaply. The Treasury has sold mountains of debt to pay for it. But the trend also underlines stubborn anxiety in the financial market that could keep the economy sluggish for years to come, and it translates into stagnant returns for people who have their money in places like money market funds.

“There’s a price for safety,” said Peter Crane, president of money market mutual fund information company Crane Data LLC. “Down slightly is the new up.” As the stock market has taken its alarming plunge, people have been moving money from riskier assets to safer ones. According to Crane Data, funds invested purely in Treasurys have surged more than 150 percent over the past year, to $726 billion.

Earning zero percent on an investment for a short while may not seem that dire for the average person. But a zero percent rate has serious consequences for the complex credit markets.
Those markets have been dysfunctional since Lehman Brothers Holdings Inc. went bankrupt in September, scaring away investors who normally buy bonds from seemingly creditworthy borrowers. Lending, the lifeblood of the economy, has frozen up.

One corner of the credit markets is the repurchase markets, known as “repo,” where banks and securities firms make and receive short-term loans backed by collateral, usually Treasury bills.
When those T-bills are yielding nothing, there’s little incentive to deliver them on time. If the holder loses the interest, it’s no big deal.

“This is a particular problem in a time like this, because people are buying Treasury securities for their security, for their safety. It’s important that they’re delivered,” Crandall said. And high demand for government debt rather than corporate debt could stifle economic growth. Corporate bond rates have been surging to record levels compared with Treasurys, which makes it more expensive for companies to raise money. And when companies can’t raise money, they often have to cut costs, sometimes through layoffs.

Only a few corporate bond deals have been going through lately, and most have been through the government, which has agreed to guarantee financial institutions’ bond sales. American Express Co., for one, said Tuesday it has issued $5.5 billion through the government program. Many worry that the government will become the most attractive lender and borrower in the market — crowding out others in the private sector.

“Because they have a printing press, they can borrow ever greater quantities,” said Howard Simons, strategist with Bianco Research in Chicago. The 2-year note rose 6/32 to 100 25/32 and its yield fell to 0.85 percent from 0.94 percent late Monday. The 10-year note rose 25/32 to 109 17/32 and its yield fell to 2.65 percent from 2.75 percent. The 30-year bond rose 2 21/32 to 128 5/32 and its yield fell to 3.04 percent from 3.16 percent.

The three-month Treasury bill by late trading yielded 0.03 percent, up marginally from 0.02 percent late Monday. The discount rate was 0.02 percent. And bank-to-bank lending rates slipped. The London Interbank Offered Rate, or Libor, for three-month loans in dollars fell nearly 0.03 percentage points to just over 2.16 percent, according to the British Bankers’ Association.

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Japanese men walk past a Sony display at an electronics store in Tokyo on Oct. 23, 2008.

The maker of such iconic consumer products as the PlayStation video game system and Walkman music players said net profit for July-September tumbled to ¥20.8 billion from ¥73.7 billion in the same period a year earlier.

In the year-earlier period, Sony’s bottom line was boosted by a one-time ¥61 billion gain from the sale of part of its former Tokyo headquarters.

Revenue fell 0.5% to ¥2.07 trillion from Y2.08 trillion.

The latest second-quarter number was below the ¥25.1 billion mean estimate of 19 analysts polled by Thomson Reuters.

The net-profit announcement came less than a week after Sony slashed its fiscal year earnings forecast. The company warned on Oct. 23 that profit for the fiscal year would be less than half its previous forecast, saying its net earnings for the second quarter would be about ¥21 billion.

Sony said operating profit tumbled over 90% to ¥11 billion in the second quarter from ¥111.6 billion a year earlier.

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