SINGAPORE (Bloomberg) -- Asian stocks rebounded from an eight-week low after the Federal Reserve said the U.S. economy will probably weather sub-prime mortgage defaults that sparked a $2.65 trillion sell-off in equities worldwide.

Mitsubishi UFJ Financial Group Inc., Japan's largest bank, led gains by financial shares that had dropped on concern a crunch in the credit market sparked by the sub-prime rout in the U.S. would drag on earnings. Samsung Electronics Co. and Toyota Motor Corp. rose on speculation spending in the U.S., the region's biggest export market, will be sustained.
The Fed's comments “had a calming effect on the market, that the sub-prime issue is not a death knell for the U.S. economy and the global environment is still strong,” said Hans Kunnen, who helps manage the equivalent of $117b at Colonial First State Global Asset Management in Sydney.
Higher profits lifted shares at Daikin Industries Ltd., Japan's biggest maker of air conditioners, and Pacific Basin Shipping Ltd., an operator of dry-bulk cargo ships. Hyundai Merchant Marine Co. climbed after the two Koreas announced their leaders will meet for the first time in seven years.
The Morgan Stanley Capital International Asia-Pacific Index added 1.2 percent to 152.46 at 4:16 p.m. in Tokyo, with more than three stocks advancing for each that fell. The benchmark is down 5.6 percent from a record set July 24 and Tuesday closed at the lowest since June 14. The index's 10-day historical price volatility was 24.9, near last week's five-month high of 25.1.
------------ Markets advance
In Japan, the Nikkei 225 Stock Average rose 0.6 percent to 17,029.28. Gains were limited after the government said machinery orders fell the most in 11 months.
The S&P/ASX 200 Index climbed 1.9 percent, the most since March 15, in Australia, where the central bank raised the benchmark interest rate a quarter point to 6.5 percent, an 11-year high. Singapore's Straits Times Index climbed 3.1 percent, its biggest gain for more than a year. Other markets advanced, except in New Zealand and China.
The Standard & Poor's 500 Index posted its best two-day gain since 2003 as the Fed kept its benchmark interest rate at 5.25 percent Tuesday. The MSCI World Index has recouped about a fifth of its value after about $2.65 trillion was wiped from worldwide markets since July 23. Moody's Investors Service said Tuesday that the fallout from sub-prime mortgage losses will be “manageable”.
Mitsubishi UFJ added 3.5 percent to 1.2m yen. Mizuho Financial Group Inc., Japan's second-biggest lender, climbed 3.6 percent to 712,000 yen. HSBC Holdings Plc rose 0.7 percent to HK$144. Its North America earnings in the first half slumped 35 percent because of loan defaults by sub-prime borrowers, the company said June 30.
-------------- “Banks are cheap”
“There have been a lot of worries about sub-prime issues, but now I suppose there is a bit of bargain hunting,” said Yoji Takeda, who helps manage about $900m at RBC Investment (Asia) Ltd. in Hong Kong “Certainly from a valuation perspective, banks are cheap.”
Macquarie Bank Ltd., the largest Australian securities firm, climbed 5.6 percent to A$78.49. The company's Macquarie Fortress Investments Ltd. unit, which had $873m in two high-yielding funds, said on July 31 it was forced to sell assets to avoid breaching loan agreements.
DBS Group Holdings Ltd., Singapore's No. 1 bank, rose 5.3 percent to S$21.80. The stock has plunged 7.6 percent since the lender said on Aug. 3 that about 22 percent of its $850m in collateralized debt and loan obligations are based on asset-backed securities that have “various exposures” to U.S. sub-prime housing loans.
--------- “Moderate” expansion
The MSCI Asia Pacific Financials Index climbed 2.2 percent Wednesday, the best performance among 10 industry groups. The measure dropped 6.3 percent in the previous two weeks.
“Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing,” the rate-setting Federal Open Market Committee said Tuesday. “Nevertheless, the economy seems likely to continue to expand at a moderate pace.”
Samsung, Asia's biggest maker of chips and mobile phones, gained 3.1 percent to 602,000 won. The company accounted for about 16 percent of South Korean exports last year. Toyota, poised to become the world's largest automaker by sales, added 0.8 percent to 7,310 yen. Hon Hai Precision Industry Co., the biggest electronics contract manufacturer, rose 2.6 percent to NT$274.50.
----------- Infosys jumps
“The Fed comments led investors to believe the sub-prime problem is an isolated one,” said Thue Isen, who manages about $1b in Asian equities at Bankinvest Group in Singapore. “That is positive for Asia as there was a question mark over whether the mortgage problems will slow the U.S. economy.”
Infosys Technologies Ltd., India's second-largest software exporter, jumped 5.7 percent to 1,985 rupees.
Daikin Industries jumped 8.1 percent to 4,950 yen. First-quarter net income more than doubled to 26.5 billion yen ($223m), helped by higher sales, a weaker yen and cost cuts, the company said. It also raised its net-income forecast for the six months ending Sept. 30 to 39 billion yen from 28 billion yen.
Pacific Basin surged 6.8 percent to HK$11.88 in Hong Kong. First-half net income more than quadrupled to $163m as it charged more to move cargo, beating the median forecast of $140m in a Bloomberg survey of analysts