A strong overnight rally on Wall Street lifted the local bourse out of its recent downtrend.

The local bourse, and especially the key FBM KLCI index, rebounded strongly on Wednesday after several days of sharp losses. However, volume was thin. This could be due to the upcoming Chinese New Year holidays and also continued caution among many investors, amid lingering external problems and Wall Street’s recent gyrations.

The FBM KLCI was in positive territory the entire day on Wednesday, closing 12.3 points higher at 1,246.2. Most of the index’s gains came from blue chips, with banking stocks such as EON Capital, AMMB and CIMB among the major gainers.

The broader market was, however, less exuberant. Market breadth was more mixed throughout the afternoon, but closed positive with advancing stocks beating declining ones by an 8-to-5 ratio. Volume fell from an already low 773 million shares to 615 million shares. Retail stocks comprised most of the actively traded stocks, including KNM, Sanichi and Mulpha.

The local bourse took its cue from Wall Street, where stocks had their biggest rally in five weeks, following reports that Germany was considering a rescue package for Greece. Concerns over Greece's debts, and that of other weak members of the euro zone have weighed on global stock markets for several weeks.

Ironically, these sovereign debt concerns are delayed repercussions of the recent global financial crisis, as the burden of debt shifts from consumers to banks to sovereigns, due to the high cost of bank bailouts and stimulus packages.

It is unclear if these concerns will ebb or whether Wall Street will resume its downtrend, as there are also a host of other lingering external issues, ranging from the slow pace of the US economic recovery to China’s credit tightening measures.

For the next two trading days though, volume will likely stay low due to the upcoming long break for the Lunar New Year celebrations.