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Most Asian stocks bounced Thursday as UK and US government yields fell after the Bank of England jumped into bond markets to prevent a financial catastrophe.
However, the pound -- which this week hit a record low against the dollar -- fell again, with commentators warning it could face further pain and Prime Minister Liz Truss backing the controversial budget that sparked the turmoil.
Financial markets are being hammered as central banks around the world ramp up interest rates to tackle runaway inflation, fuelling worries about a recession and a possible hit to company profits.
The selling picked up this week after new UK finance minister Kwasi Kwarteng unveiled a tax-cutting mini-budget Friday, which many experts -- including the International Monetary Fund -- warned would fan borrowing and deal a further blow to the already fragile economy.
The spending plan sent yields on UK government bonds and those of other countries soaring and raised the prospect of even bigger interest rate hikes.
That led the Bank of England on Wednesday to announce a two-week programme to spend £65 billion ($71 billion) buying long-dated UK bonds "to restore orderly market conditions".
The move meant the BoE had to suspend a programme to sell "gilts" as part of its drive to fight inflation, though analysts speculated that it could give traders some hope that similar support could be provided elsewhere.
National Australia Bank's Ray Attrill said traders had grown accustomed to the fact that central banks were not ready to simply help asset markets when they drop in response to inflation-fighting measures.
But now there was an understanding that "when markets become dysfunctional with potential real-world economic consequences, central banks' financial stability obligations can still kick in".
All three main indexes on Wall Street surged around two percent Wednesday, while European markets were also up.
Most of Asia extended the gains, though the initial surge was beginning to wane as the day wore on.
Tokyo, Sydney, Seoul, Singapore, Wellington, Taipei, Mumbai, Bangkok and Manila were all up.
But Hong Kong sank as tech firms, which are susceptible to higher rates, were hit by ongoing worries about the impact on their bottom lines.
London opened lower, while Frankfurt and Paris were also down.
- 'Markets pessimistic' -
The pound fell back to around $1.0800, having spiked at $1.0900 earlier, as markets continue to fret over the government's plans to slash taxes.
Truss, however, appeared to push back against calls for her government to perform a U-turn.
"We're facing very very difficult economic times, we’re facing that on a global level," she said Thursday in interviews with local BBC radio stations.
"We had to take urgent action to get our economy growing and that means taking controversial and difficult decisions," she said in her first comments since the storm erupted.
OANDA's Edward Moya warned of more rough seas for sterling.
"The British pound went on a little roller coaster ride following the BoE action to buy unlimited long-dated gilts, but will still probably remain heavy over the country's fiscal situation, current account deficit, financial stability risks, and energy poverty likelihood for parts of the population," he said in a note.
And MUFG analyst Lee Hardman said the BoE move "has certainly upped the level of concern over the potential negative economic and financial market fallout from the loss of confidence in UK's public finances".
The uptick across equity markets, however, was rare and the general mood on trading floors remains dark as the Fed and other central banks zero in on hiking borrowing costs to fight decades-high inflation.
"All eyes are on inflation and interest rates," said Josh Emanuel at Wilshire. "Equities are really going to take their cues from bond markets. So if you see bond yields move lower, that is a good sign for equities."
And Julia Raiskin at Citi added that "markets are very pessimistic... Other than the dollar, there are not many assets that are trading constructively."
- Key figures at around 0720 GMT -
Tokyo - Nikkei 225: UP 1.0 percent at 26,422.05 (close)
Hong Kong - Hang Seng Index: DOWN 0.6 percent at 17,150.42
Shanghai - Composite: DOWN 0.1 percent at 3,041.20 (close)
London - FTSE 100: DOWN 0.7 percent at 6,954.98
Pound/dollar: DOWN at $1.0782 from $1.0889 on Wednesday
Euro/dollar: DOWN at $0.9667 from $0.9735
Euro/pound: UP at 89.50 from 89.39 pence
Dollar/yen: UP at 144.71 yen from 144.11 yen
West Texas Intermediate: DOWN 0.7 percent at $81.57 per barrel
Brent North Sea crude: DOWN 0.7 percent at $88.68 per barrel
New York - Dow: UP 1.9 percent at 29,683.74 (close)
B.Martinez--TFWP