Shares rise

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SYDNEY- Asian shares staged a cautious bounce on Wednesday with hopes a global banking crisis would be averted vying with uncertainty over the outlook for US interest rates as the Federal Reserve 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.

Strains were still evident among regional US banks with shares of First Republic Bank sliding on suggestions the government might be involved in a rescue deal, perhaps disadvantaging shareholders.

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The unease left both S&P 500 futures and Nasdaq futures barely changed. EUROSTOXX 50 futures edged up 0.2 percent, while FTSE futures rose 0.1 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.3 percent, with Chinese blue chips up 0.3 percent. Japan’s Nikkei climbed 2.0 percent led by a rebound in beaten-down bank stocks.

The still brittle mood was evident in the latest BofA 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.

All of which puts the Fed in a tough position as it decides whether to raise interest rates later today.

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 would 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,” notes Goldman.

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.

They note the Fed could still soften its forward guidance by dropping its reference to “ongoing increases”, much as the European Central Bank did last week. –Reuters

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