After a day of mixed trading, European stocks rebounded amid hopes that US lawmakers would eventually pass a billion-dollar rescue package to shore up financial markets.
US and European markets were higher Tuesday as investors hoped another vote on the US financial bailout package would see the plan passed and a start made on reining in the global turmoil.
Dealers said some modest bargain hunting took the markets off early lows following a massive near seven percent plunge on Wall Street Monday when the 700-billion-dollar bank rescue was voted down.
Solid gains on Wall Street, with the Dow Jones Industrial Average up some 2.5 percent during late European trade, provided more support for investors who have been on a rollercoaster ride of hope and despair amid a series of bank failures, bailouts and increasingly strident calls for action.
In London, the FTSE 100 index of leading shares finished with a gain of 1.74 percent to 4,902.45 points, the Paris CAC 40 rose 1.99 percent to 4.032.10 points and Frankfurt's DAX added 0.41 percent to 5,831.02 points.
Dealers said the hope was that the US rescue plan will eventually get through, especially as central bank efforts to get the commercial banks lending again seem to be getting nowhere.
Failing that, interest rates will have to be cut so as to lower the cost of doing business but with inflation still a worry, some, especially the European Central Bank may be reluctant to do so just yet.
Dexia became the latest European bank to need a state bailout with Belgium, France and Luxembourg pumping 6.4 billion euros (9.2 billion dollars) into the group so that the financial crisis would not claim another victim.
Meanwhile, US President George W. Bush on Tuesday warned lawmakers opposed to the bailout plan that the threat to the US economy "will grow worse each day" that goes by without a deal.
Bush insisted that action had to be taken, noting that the cost of the rescue package was less than the trillion dollars and more lost on Wall Street Monday.
"Congressional leaders from both parties indicated they will go back to negotiations and still hope to pass a bill by the end of the week," said Barclays Capital analyst Julia Coronado.
"It appears the basic core of the plan will be kept intact and the approach will be to make enough modifications in order to win the handful of votes needed."
In tense scenes on Monday, Republican conservatives and rebel Democrats combined to doom the bailout bill by 228 votes to 205 after Bush had pleaded for its passage.
Most Asian markets closed down sharply -- with Tokyo losing 4.1 percent to a three-year low and Sydney off 4.3 percent -- but Hong Kong came back to finish with a gain of 0.8 percent after falling by more than six percent at one point.
In European trade, the spotlight was again on the banks, with Dexia in Brussels up more than six percent and Fortis, the banking and insurance group rescued over the weekend, up 8.39 percent.
In Germany, Hypo Real Estate bounced back nearly 18 percent after losing 74 percent on Monday when it too was bailed out by the authorities.
Other German banks however found little support, with Commerzbank down more than five percent and Deutshce Bank off 2.2 percent.
In Paris, Romain Hayat of Meeschaert Asset Management said that "after the panic of (Monday), the markets are hopeful again and think that the US Congress will finally adopt" the rescue deal.
The banks were slightly firmer, with BNP Paribas up 0.84 percent and Societe Generale up 1.85 percent.
In London, the gains were led by the miners, with Rio Tinto jumping nearly five percent while investors also bought the food stores to push Tesco up 4.79 percent.
The banks in contrast suffered again in the fallout from the government takeover of mortgage specialist Bradford & Bingley, with Barclays down 2.32 percent.
HBOS plunged 13.80 percent as investors raised doubts that its rescue takeover by Lloyds TSB, up 4.26 percent.
Reflecting the continued unease, Italian shares lost more than one percent after Unicredit, one of the country's biggest banks, tumbled nearly 13 percent, extending heavy losses on concerns about its financial health.
The government insisted that all was well with Italy's banking system and Unicredit likewise said its finances were sound but to no avail, highlighting the crucial lack of confidence at the core of the recent troubles.
In Dublin, which plunged nearly 13 percent Monday, stocks gained some 7.4 percent after the authorities issued a blanket guarantee for all bank deposits.
In Moscow, the rouble- and dollar-denominated markets both finished with modest gains after trade was suspended for several hours to allow nerves to calm as Wall Street offered support.
Date created : 2008-09-30