Asian shares rallied yesterday after the US Federal Reserve cut interest rates by 75 basis points, the steepest cut in two decades.

The Philippine Stock Exchange index rose 2.68 percent while the peso strengthened from Tuesday’s huge slide.

The rate cut was enough to soothe panic selling in global markets with the Dow Jones average closing down by only one percent from initial losses of four percent.

Markets are now anticipating another cut by Friday. Some said the Fed’s decision — a week before a scheduled rate meeting — smelled of panic even though it halted the global market meltdown.

The move left the fed funds rate at 3.5 percent, below the European central bank’s 4.0 percent and lower than interest rates in most Asian countries.

For example, Indonesia’s key interest rate stands at 8.0 percent while that in the Philippines is now at 5.25 percent.

The Philippine Stock Exchange index closed 79.85 points up to 3,058.26.

Trading reached P4.51 billion, with foreign funds dumping another P1.2 billion worth of shares.

From January 15 till Tuesday, January 22, the market dropped by 13.56 percent.

It is down 23.1 percent from the October 8 high of 3,873.50.

Foreign funds have unloaded P27 billion since November. This year alone, foreigners have dumped P10.68 billion worth of shares.

Jose L. Vistan, Jr., AB Capital Securities, Inc. research head, said the market might move sideways for the first half of the year.

Claire Quiray, Accord Capital Equities, Inc. analyst meanwhile said that they expect the US election slated in November this to perk-up the market sentiments by second half.

Philippine Long Distance Telephone Co. (PLDT) was up P20 to P2, 585.

Ayala Corp. was up P7.50 to P450.

San Miguel Corp. A and B shares were both up P0.50 to P54.50.

The peso yesterday closed at 41.25 to the dollar, up about 0.8 percent from Tuesday’s close. The Bangko Sentral ng Pilipinas had to step into the market to smooth the peso’s volatility.

"They (central bank) are buying dollars to smooth the volatility, but I guess they just don’t want the peso to strengthen too fast," said a trader.

Meanwhile other markets closed higher at the end of a see-saw session yesterday with Singapore up more than 4 percent.

The Straits Times Index ended up 4.1 percent, recovering from massive sell-offs earlier this week that saw the benchmark wipe out all its gains made since the start of 2007.

Indonesian stocks climbed 7.9 percent to recoup all Tuesday’s losses. Thai shares dipped 0.1 percent, while the Philippine index rose 2.7 percent.

Vietnam stocks fell 3.9 percent, while the Malaysian market was closed for a holiday.

"Asian stocks rebounded from the Dow recovery, but there’s also an element of an oversold situation because Asian and European markets fell when New York was closed," said Gordon Tan, a senior portfolio manager at JPMorgan Private Bank in Singapore.

"Remember, though, interest rates work with a lag of up to a year and the risk is that it is too late, and that a recession is already inevitable," said Tony Dolphin, director of economics and asset allocation at Henderson Global Investors.