Stocks gain anew as small rate hikes loom: Philippines

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Stock markets in Asia mirrored overnight Wall Street gains as fears over liquidity in the banking sector receded.

The benchmark Philippine Stock Exchange index (PSEi) closed higher for a second day, adding 15.52 points or 0.24 percent to 6,546.27, while the broader All Shares index ended at 3,499.97, up by 6.47 points or 0.19 percent.

Total value turnover reached P4.2 billion. Market breadth was positive, 98 to 77, while 49 issues were unchanged.

In a note, Unicapital Securities said the sustained optimism can be attributed to easing concerns over the global banking crisis as well as the less hawkish stance of the US Federal Reserve and Bangko Sentral ng Pilipinas, both of which are expected to hike rates by a smaller 25 basis points this week.

Claire Alviar of Philstocks Financial said many investors, however, still stayed on the sidelines as they wait for the outcome of the Fed and the BSP policy meetings.

In other Asian markets, shares staged a cautious bounce with hopes a global banking crisis would be averted vying with uncertainty over the outlook for US interest rates as the Fed holds a high-stakes meeting on policy.

Efforts by US Treasury Secretary Janet Yellen to calm nerves seemed to be working with bank shares rallying overnight. Government officials were also pondering increasing the limit on deposit insurance, though there was no agreement on this as yet.

The still brittle mood was evident in the latest Bank of America survey of global fund managers which found pessimism near its worst in the past 20 years amid fears of financial risk and a flight from bank stocks.

Goldman Sachs, for one, argues the banking stress will cause a tightening in lending that is essentially the same as a rate hike so a pause will be warranted.

'The historical record suggests that the FOMC tends to avoid tightening monetary policy in times of financial stress and prefers to wait until the extent of the problem becomes clear, unless it is confident that other policy tools will successfully contain financial stability risks,' Goldman said.

Analysts at JPMorgan, on the other hand, stand with the majority and flag a rise of 25 basis points in part because postponing a move until May would threaten the Fed's inflation-fighting credibility.