Asian stock markets rallied Tuesday, reversing a weeklong sell-off triggered by worries of a global slowdown and fanning hope that international trading turmoil may finally subside.

U.S. Treasury Secretary Henry Paulson, in Tokyo for a three-nation Asian tour, tried to quell concerns about markets saying the global economy is as strong as he’s ever seen and that reforms in China would help lessen market volatility.

The Tokyo Stock Exchange, the region’s biggest bourse, led the turnaround with its benchmark Nikkei 225 index climbing 202.25 points, or 1.22 percent, to finish at 16,882.92 points and end five straight days of losses that had seen the market plunge more than 8 percent.

Hong Kong’s Hang Seng index was up 1.58 percent, while Sydney’s S&P/ASX 200 closed 2.06 percent higher. Markets in South Korea, Taiwan, Singapore, Malaysia and Indonesia were all 1 percent higher.

The Shanghai Composite index, the epicenter of last week’s market meltdown, rose 1.97 percent to close at 2,840.18.

Investors flocked back to the market, scooping up shares after days of losses and renewed confidence that underlying economic fundamentals are basically stable.

On Wall Street Monday, U.S. stocks fell after trying to steady themselves. The Dow fell 63.69, or 0.53 percent, to 12,050.41.

In Tokyo, Paulson tried to bolster confidence by saying the U.S. and global economy are strong and that stock market volatility is inevitable.

“The global economy is more than sound. It’s as strong as I’ve seen in my business lifetime,” Paulson said after meeting Japanese officials in Tokyo.

“Markets very seldom move in a straight line,” said Paulson, who was scheduled to later head to South Korea and then China. “You are always going to have volatility.”

Many analysts had seen the sell-off as a healthy correction for markets that had risen too far, too fast. China’s market had doubled in value last year, for example. Malaysian stocks had surged 17 percent this year until the plunge.

Asia is particularly vulnerable to worries about the U.S. economy because its export-oriented economies rely heavily on American consumers.

Investor sentiment was also lifted by a recovery in the dollar Tuesday from a three-month low Monday. The dollar bought 116.40 yen — up from the mid-115 yen level Monday but down from above 120 yen last week.

Recent market turmoil has prompted some investors to unwind so-called yen-carry trades, which involves borrowing money at Japan’s ultra-low interest rates to invest in higher-yielding assets elsewhere. A decline in this practice could hurt global liquidity.

As the yen appreciates, the profits from these trades are eroded, prompting some investors to return yen loans, strengthening the Japanese currency.

Still, while the Bank of Japan raised interest rates last month to 0.5 percent, they are still far lower than rates in the U.S. or Europe, making the yen-carry trade still an attractive strategy, analysts said.

Copyright © 2007, The Associated Press