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Latest update : 2009-04-08

World leaders at the G20 summit in London boosted markets worldwide when they announced an additional trillion dollars to support the International Monetary Fund and boost flagging trade.

AFP - World stocks shot higher Thursday amid greater optimism following a G20 summit pledge to boost efforts to fight recession and a US accounting change that could ease pressure on the banking system.

On Wall Street, the Dow Jones Industrial Average vaulted 2.79 percent and the tech-heavy Nasdaq index closed with gain of 3.29 percent. The broad Standard & Poor's 500 index rallied 2.87 percent.

London's FTSE 100 index of leading shares closed up 4.28 percent, Paris soared 5.37 percent and Frankfurt catapulted 6.07 percent.

"The G20 meeting yielded more talks of regulation, more aid for developing nations, and additional labor efforts globally," said Jon Ogg at 24/7 Wall Street.

"But the real boost was the end of 'mark-to-market' accounting for the banks on illiquid debt assets. This sent the banks flying."

The Financial Accounting Standards Board voted to modify the so-called "mark-to-market" accounting standard, which had aimed for more transparency in financial reports but had been blamed by some for worsening the financial crisis.

The latest change "should give a boost to profits of financial companies," said Ed Yardeni at Yardeni Research.

"More importantly, it should take the pressure off of them to raise funds to fill up black holes in their capital created by the original rule."

"The step could enable greater lending activity to spur the broader economy," said Jocelynn Drake at Schaeffer's Investment Research.

"Banks may also not be as likely to take big write-downs," she said, while adding "critics say that altering the rules could make banks' financial health less transparent to investors."

In London, G20 leaders on Thursday agreed to give an extra one trillion dollars for international credit and an extra 250 billion dollars to boost global trade, as well as setting new rules on pay and bonuses for corporate chiefs.

"A new world order is emerging and with it we're entering into a new era of international cooperation," British Prime Minister Gordon Brown said in a post-summit press conference.

French President Nicolas Sarkozy, who had threatened to walk out of the summit if it did not meet his aims, said its conclusions were "more than we could have hoped for" from the crunch talks.

US banking giant Citigroup said one key achievement was the "much reduced risk of an emerging market currency crisis, thanks to the increased funding for the IMF (International Monetary Fund) and commitment to support trade finance."

Derek Halpenny from Bank of Tokyo-Mitsubishi said: "What is most encouraging for the G20 leaders summit in London today is the building evidence that the Lehman-related collapse in global demand seems to be coming to an end."

The collapse of US bank Lehman Brothers last year aggravated a serious financial sector crisis and loss of confidence in the economy in the United States, which then spread to almost every other part of the world.

"Demand for equities is improving, signalling that the light at the end of the tunnel is getting closer," said Joshua Raymond, market strategist at London-based online spread-betting firm City Index.

Stocks got an extra boost by a 1.8-percent rise in orders for US manufactured goods in February after six consecutive monthly declines, the latest sign that the decline in industrial activity may have hit bottom.

In other markets, Toronto's S&P/TSX index added 1.47 percent and Brazil's Bovespa surged 4.19 percent.

The rally started even before the G20 concluded, as Asian stocks powered higher.

Hong Kong led the charge in Asia, shooting up 7.41 percent, while Tokyo closed up 4.40 percent at a three-month high and Mumbai gained 4.51 percent.

Market attention also turned to the European Central Bank, which cut its key interest rate by a less-than-expected quarter point to a record low 1.25 percent and stuck to a guardedly upbeat medium-term outlook.

Global stocks have risen over the past four weeks as confidence returns to markets following a number of stimulus measures by governments and a US pledge to help banks clear their books of toxic assets that have clogged lending.

Date created : 2009-04-03