HONG KONG, Oct 20 (Reuters) - Most Asian stock markets rallied on Monday, with valuations growing more attractive, and oil prices rose ahead of an expected supply cut at an emergency OPEC meeting this week, but a threat of global recession haunted investors.
The cautious buying of equities did not translate into a move out of government bonds, with Japanese government bond futures climbing and U.S. Treasury futures nearly unchanged on the day, suggesting investors were still reluctant to take risks.
Governments around the world rushed out further steps to help the private sector, pledging so far well in excess of $3 trillon to try to stabilise financial markets and resuscitate the banking industry which has been badly damaged by a crisis of confidence.
South Korea promised $130 billion in state guarantees and capital injections and the Dutch government said it would prop up ING with around 10 billion euros.
"A slew of recent policy actions worldwide has provided some relief to the banking sectors in the major economies," said Kengo Suzuki, a currency strategist at Shinko Securities in Tokyo. "But the state of the market remains very fragile with worries mounting about the global economy and emerging markets," Suzuki said.
The MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> rose 1.2 percent. The index suffered a seventh consecutive week of losses last week and remains down 52 percent so far this year.
Hong Kong's Hang Seng index jumped 2.2 percent, but is down 17.3 percent so far this month.
Japan's Nikkei average edged up 0.5 percent, though it is down 19 percent in October.
South Korea's KOSPI fell 1.9 percent, weighed down by stocks with large exposure to global economic trends such as Hyundai Heavy Industries <009540.KS> and steel maker POSCO <005490.KS>.
Shares of brokerage Mirae Asset Securities <037620.KS>, which has a focus on emerging markets, were down 15 percent on market talk of a possible downgrade.
The Korean government's rescue package modestly pushed up the won against the U.S. dollar, but analysts said the steps would unlikely be strong enough to reverse what has become a fierce downtrend in global equity markets.
"Korea remains particularly vulnerable to the global credit squeeze/deleveraging, and the economy is doomed to decelerate significantly along with the global recession," Calyon strategists said in a note.
SHORT-TERM HAVEN
Last week investors continued to pull their money out of emerging market equity markets and stash it in short-term money markets. However, Europe equity funds saw a net $2.1 billion in fresh money, the biggest inflow since the third week of April, after some action by European leaders to shore up the financial system, according to EPFR Global.
Money market funds were the biggest magnet for equity capital, absorbing a record $44.4 billion for the week, the Boston-based firm that tracks $10 trillion in assets said in a note.
Oil prices edged up after tumbling around $36 in the last three days in anticipation of a severe pullback in demand. U.S. crude futures for November delivery rose $1 to $72.87 a barrel after plumbing the lowest since July on Friday.
Gold jumped more than 2 percent, as raw materials prices rebounded, following oil's rise. Gold in the spot market was trading at $794.45 an ounce, up from Friday, when it hit a one-month low of $771.30 as a lack of confidence in the financial system and a U.S. dollar rally ignited heavy liquidation by commodity funds.
The yen fell against the euro and the Australian dollar on Monday as a crisis summit planned for next month helped the market to regain some stability and prompted investors to pick up the recently battered currencies.
But analysts said safety demand for the low-yielding yen was also intact as worries grew about deteriorating financial conditions in emerging markets after Iceland, Ukraine and Pakistan asked for aid to prop up their economies, slowing the yen's fall.
The U.S. dollar was trading at 101.65 yen , nearly flat from late New York trade on Friday when more bleak U.S. data stoked fears that the credit crisis had knocked the economy into recession and pushed Wall Street shares down.
The euro rose 0.3 percent against the yen to 136.73 yen after dipping as much as 0.3 percent in early Asian trade.
Japanese government bond futures rose from a three-month low hit earlier as signs of improvement in the strained money market spurred investor buying.
December 10-year futures <2JGBv1> rose 0.55 point to 136.30 after initially sliding to a three-month low of 135.47 on the gains in stocks. (Additional reporting by Satomi Noguchi in TOKYO)
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