Equity markets in Asia and futures on bourses worldwide are seeing sharp gains nearly unanimously on what is billed as the equivalent of a "New Deal" from China - the 21st "economic engine" for growth worldwide. Over the weekend, China announced a 4 trillion yuan ($575B) economic stimulus plan to be implemented through 2010, targeting massive spending in infrastructure (construction of new railways, roads and airports), tax deductions (slashing of enterprise business tax by CNY120B), farming subsidies, as well as expansion of social benefits (new initiatives in affordable housing and health care). The objective of the plan is to stimulate China's domestic demand as the country's export growth is expected to slow. The announcement and scale of the stimulus - said to be far more aggressive than that seen during the 1998 Asian crisis - runs counter to recent rhetoric from the State Council,which has been adamant about China's immunity to economic chaos and was largely a passive observer of the other major economies rushing to engineer bailout plans. However, rising social unrest in response to decline in manufacturing sector, rising unemployment, and fears over further deceleration of economic growth in quarters to come that became particularly evident in last quarter's single-digit reported growth as well as contraction in manufacturing sector (first PMI contraction since 2005) prompted the Chinese authorities to join in on the bailout with fund injection near equivalent to 15% of its yearly GDP.

Although some uncertainty is surfacing over how the proposed stimulus funds will be spent, regional equity market response out of the gate is proving to be extremely favorable. Japan's Nikkei was the biggest Asian market gainer at over 5%, followed by Shanghai's 4% session rally and Hang Seng's 3% boost. Shares of Nippon Steel, Japan's second largest maker of alloy, and Hitachi Construction, a sixth of whose business is dependent on demand from China, were among the most notable gainers, rallying 8% and 17% respectively. Exporters were also bid sharply higher, with Sony gaining over 9%, and Honda and Nikon picking up nearly 5%. Meanwhile, China Life Insurance, nation's largest insurer was seen advancing 6% in anticipation of accelerated business activity from increased benefit allocations.

Australia's materials/mining sector cheering China's ambitious infrastructure plan boosted the S&P/ASX index by 1.6% even as its central bank issued a somewhat somber assessment over the Aussie economic prospects for the immediate future. Rio Tinto gained over 8% while BHP picked up just over 7% in late Australia trading hours. The broarder market rally was muted by the RBA quarterly statement that saw weaker domestic activity lasting longer than expected, prompting it to cut 08/09 GDP forecast to 1.5% from 2.25% and 09/10 forecast to 2% from 2.5%. Furthermore, Aussie central bank continued to forecast decelerating inflation toward 3% in 2010 and decline in terms of trade from last quarter's "peak", while also anticipating lower domestic spending and higher unemployment. Given these projections, aggressive monetary easing by RBA is likely to continue.

Korea's Kospi gained about 0. 8% mid-session, with Fitch downgrade on S Korea economy souring investor sentiment. Meanwhile, front month S&P contract rallied by 1.8% in extension of Friday's gains as value-seeking bullish investors stepped up the buying in spite of the dismal jobs report. Monday morning will see earnings reports from government appropriated Fannie Mae, energy infrastructure giant Enterprise GP, tech notable Nortel, and meat products staple Tyson Foods.

- The WSJ reported that the US government may revise its rescue plan for AIG in a move to make the terms of the agreement less onerous and to deal with risks in the credit default swap market. The revised plan is expected to see the government buy $40B of AIG's preferred stock and improve the terms of AIG's government loan. Additionally the government plans to allocate $30B to a vehicle which would pay about 50 cents on the dollar to buy the underlying securities (CDOs) which AIG agreed to insure with credit default swaps. Furthermore the US government will launch another vehicle, which will be capitalized with around $20B and be used to pay 50 cents on the dollar for AIG's illiquid residential mortgage backed securities. Following the revised agreement with AIG the government is expected to have $150B of total exposure to the insurer.

In currencies, risk averse flows seen late last week were once again reversed with both the greenback and Japanese Yen gapping sharply to the downside at the start of trading on news of China's stimulus plan. After closing just over 1.2720, EUR/USD traded just below 1. 29 before paring its gain while USD/CHF bounced off November ceiling of 1. 18 toward 1.1720. Gains in the Swissy were notably less pronouced with markets showing clear bias toward higher yielding majors. GBP/USD traded as high as 1.5880 after closing just above 1.56 on Friday. Sterling gains were also augmented by reports that UK Chancellor Darling announced additional fiscal stimulus as well, with measures worth several hundred pounds to every family facing difficulties in tax credits, as well as proposed help with fuel bills for the elderly. Terms for these measures are expected to be released in an emergency budget in the Pre-Budget Report next week. Despite the bullish momentum and additional stimulus, some caution should be exercised with the Sterling rally going into the European hours with UK PPI set to be released at 4:30am EST and show a 2.6% decline - a multi-year low for this measure.

Yen based pairs were higher across the board on risk aversion diminished by China's stimulus. USD/JPY resumed Friday's gains to test 99.00 handle, EUR/JPY gapped up to 128 session high from 125 prior close, and GBP/JPY picked up over 3 full figures from mid-153 range late last week but remains technically contained by week-long downsloping channel from pivotal former support turned resistance in 165-166 range. Japan was the recipient of mixed data from closely monitored machinery orders report that saw the biggest quarterly drop in Q3 of 10.4% against a forecast of a pickup in activity in the coming quarter to 1.2%.

Commodity currencies were the clear favorites among the major pairs with AUD/USD approaching November peak just above psychologically pivotal 0.70 handle. CAD buyers were less enthused on a relative basis to the Aussie, however USD/CAD also traded heavily in favor of the loonie, shedding as much as 180 pips before a modest correction.

Among the emerging Asian currencies, Taiwan dollar was initially sold heavily following a surprise 25bp rate cut by Taiwan central bank in response to the largest decline in the island's tech-heavy exports in 3 1/2 year. However, news of stimulus from China encouraged renewed emerging FX market buying, paring gain in USD/TWD while also propting knee-jerk selling in USD/SGD, as well as USD/KRW.

- Commodities prices are sharply higher across the board following the recently announced Chinese stimulus plan. Crude oil is gaining by more than 3.5% and trading above $63.00/bbl. Spot Gold is higher by more than 1.5%. Additionally, Shanghai copper is higher by its 4% daily limit, while the London copper contract is gaining by more than 7.5%.