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European markets rally as US examines bank bailout plan

Latest update : 2008-09-19

Following the Asian market upturn, European markets also rebounded on the heels of the news that the US and world banks would inject money into markets to stabilise the economy.

Asian stocks rallied Friday on the back of a rebound on Wall Street, as the US government and the world's central banks took action to keep the global financial crisis from deepening.
The Shanghai market soared by nearly 9.5 percent in morning trade after China abolished a tax on stock transactions, hoping to reverse a slide on the bourse that threatened to affect millions of middle-class Chinese.
Tokyo's benchmark Nikkei-225 index, which had slipped a day before to a more than three-year low, recovered by 3.30 percent in the morning session. Hong Kong shares jumped more than six percent.
Investors took encouragement from emergency meetings in Washington on the worst financial crisis in decades, set off by risky housing loans to "subprime" customers who now cannot make mortgage payments.
The US government was reportedly preparing to create a new entity to rescue troubled financial firms. Washington this week let Wall Street titan Lehman Brothers collapse, sending global markets into a tailspin.
"Such a plan would potentially provide a long-term solution to the credit crisis," said John Kyriakopoulos, a strategist at National Australia Bank Capital.
Central banks took a major coordinated action Thursday to ensure a global liquidity flow. The Bank of Japan on Friday injected another three trillion yen (28.3 billion dollars) into the money markets.
Stocks also got a boost after British and New York state authorities temporarily banned short-selling -- when a dealer sells a borrowed stock to profit from an anticipated price drop.
The Seoul market gained around five percent and Sydney was up by more than four percent. Taipei rose close to six percent, while Singapore shares were 3.75 percent higher in early trade.
But Kyriakopoulos said the government and central bank actions "merely stopped the bank funding crisis from getting even worse, rather than reversed it."
The Asian rallies tracked a strong late-session rebound on Wall Street, where the Dow Jones Industrial Average vaulted 3.86 percent on hopes for the new US action plan.
"The rally is a combination of a knee-jerk reaction to the reports of the new rescue plan and a mere tracking of movement on Wall Street," said Seiichi Suzuki, market analyst at Tokai Tokyo Securities.
"Market participants are also looking at key futures indexes on Wall Street, because it is hard for players in Asia to digest fully the impact of the latest developments related to the global credit crisis," he added.
Officials from the US Treasury Department, Federal Reserve and Congress met Thursday to discuss a "comprehensive approach" to rid financial institutions of bad assets at the root of the current credit crisis, Treasury Secretary Henry Paulson said.
US media reports said he was considering a bailout by taxpayers like that used in the savings and loan crisis of the 1980s and 90s.
Shanghai shares surged on China's abolition of the 0.1-percent stamp duty on buying shares. China also let its investment arm buy shares in three major banks in a bid to boost the weakening stock market.
"The investors are cautiously optimistic," said Zhang Yidong, a Shanghai-based analyst with Industrial Securities.
"The key factor that affects the trend of the market now is uncertainty over when the fallout of the subprime crisis will end," he said.

Date created : 2008-09-19