Asia shares rally on Citi rescue as risks remain

Asian shares pulled through and bonds dropped after the U.S. government rescued banking giant Citigroup in a bid to avoid further damage to the worsening global financial system.

But European shares were set for a lukewarm start, with Britain's FTSE 100 seen down 4 points to up 3 points.

The yen jumped up from sharp falls a day earlier and gained against major currencies, but some traders said the Japanese currency could freeze in the near term if investors continued to return to beat equity markets and other riskier assets from so-called safer assets such as bonds.

Oil prices retreated below $54 after increasing more than 9 percent in the previous session, a rally that was big enough to send regional commodity-related stocks such as BHP Billiton sharply higher.

But many near-term risks remained, including whether other global lenders are in need of rescue, the fate of U.S. auto makers and indicators that continue to signal a tough road ahead for the global economy.

Future not yet promising

China's growth could slowdown to its weakest pace in almost two decades next year, the World Bank said, the latest dark prognosis for a global economy buckling despite the concerted efforts of policymakers.

"What we are seeing is just short-term optimism and hope. Economic data from the U.S., Japan is not encouraging. So, the future is not promising," said Amitabh Chakraborty, president-equities at Religare Securities in India.

The MSCI index of Asia-Pacific stocks not including Japan .MIAPJ0000PUS rose 3.8 percent as of 0700 GMT, heading towards a third consecutive daily gain.

Japan's Nikkei average .N225 jumped 5.2 percent, resuming trade after a public holiday on Monday.

The broader market rally comes after an initially moderate Asian reaction to the U.S. plan, announced early on Monday Asian time, to shoulder most potential losses on about $306 billion of Citigroup's risky assets and inject capital into the struggling lender.