HONG KONG -- Asian stock markets rebounded from a five-year low on Friday as a variety of rumors such as China cutting interest rates later in the day prompted investors to cover short positions before the weekend.
The recovery in stocks pushed the yen down from a 13-year peak hit against the pound, knocked safe-haven government bonds lower, and helped oil prices edge up from an early slide.
Traders also cited talk that the Federal Reserve could cut interest rates in an emergency move later in the day or global central banks could conduct another round of joint interest rate cuts in the face of renewed market volatility.
"Lots of rumors are flying around," said Markus Amman, director of global FX sales at HVB in Hong Kong.
The MSCI index of Asia-Pacific stocks outside Japan climbed 3.3 percent, having slid 3.2 percent earlier in the day to the lowest since October 2003.
Stock markets in Europe were expected to open more than 2.0 percent lower, but S&P 500 futures were up 22 points, or 3.0 percent after a sharp fall on Wall Street the previous session.
The benchmark US S&P 500 index fell 6.7 percent, an 11-year low on Thursday, amid anxiety about the fate of corporate titans such as General Motors, Ford Motor Company and Citigroup.
Citigroup, not long ago the world's most valuable financial firm, is considering selling parts of itself or a merger of some kind, a source familiar with the matter told Reuters.
Fears of a deep global economic recession have pummeled investor confidence all week, spurring more liquidation of assets like stocks and commodities and pushing the yield on 10-year US Treasuries below 3.0 percent for the first time in a half-century.
South Korea's KOSPI led gains with a rise of almost 6.0 percent, while Japan's Nikkei average added nearly 3.0 percent.
The yen slipped after hitting a 13-year high against the pound and pushing back near an all-time peak struck against the Australian dollar last month.
The yen tends to serve as a weather vane for risk taking via its role in the carry trade, in which the low-yielding Japanese currency is used as a cheap source of funds to buy higher-yielding currencies.
The dollar was up 1.3 percent against the yen at 94.90 yen, while sterling gained about 2.0 percent to 140.75 yen after falling to a 13-year low of 137.67 yen in early trade.
Traders remained cautious about the outlook for markets despite the Friday recovery.
"So called-Armageddon trades -- selling stocks, buying government debt, and buying the yen -- will carry on as long as worries over Citigroup and the US Big Three automakers persist," said a senior FX trader at a big Japanese bank.
The MSCI All-Country World Index was up 0.7 percent after plumbing a 5-1/2-year low. It is still down some 53 percent this year.
In the bond market, the 10-year Treasury note dropped a full point in price to yield 3.112 percent, up from a low of 2.990 percent hit on Thursday -- the lowest since the 1950s.
US crude oil for January delivery edged up 31 cents to $49.74 a barrel after the December contract settled down $4 at $49.62, the lowest settlement since mid-May 2005. Oil has tumbled by nearly $100 from record highs in July.
