Markets surge as govts unveil crisis packages

WASHINGTON (AFP) - Governments around the world launched multi-pronged attacks on the financial crisis Monday, sparking record gains on stock markets amid hopes of recovery in the humbled banking sector.
After spiralling relentlessly downwards in the last few weeks, stocks reacted to trillion-dollar rescue packages in Europe and news that the US would soon buy stakes in banks as part of its 700-billion-dollar bailout plan.
Frenetic meetings by world powers in Washington over the weekend, where finance chiefs pledged to protect the financial system and work together, had also helped restore confidence, dealers said.
"The market was encouraged by financial news on a number of fronts," said Al Goldman, an analyst at US brokerage Wachovia Securities.
The rescue package announced by Germany alone included 400 billion euros (545 dollars) in loan guarantees and 80 billion euros in fresh capital, while France said it would guarantee up to 320 billion euros of lending between banks.
Austria, the Netherlands, Italy and Spain also announced measures to help their lenders.
Australia's central bank pumped more money into the country's financial system and the Japanese government said it was considering guaranteeing all bank deposits.
Stock markets, which had failed to rally after the US announced its bailout plan last month, soared amid the deluge of announcements which included more details from Britain on its part-nationalisation of several leading banks.
On Wall Street, the leading Dow Jones Industrial Average closed with a gain of some 11 percent London FTSE 100 index of leading shares jumped 8.26 percent.
Markets in Paris, Frankfurt and Hong Kong posted gains of more than 10 percent, while the Saudi market, the largest in the Arab world, closed up 9.5 percent.
"We have had our first significant bounce in the markets for some time now," City Index market strategist Joshua Raymond said in London. "(But) it's a dangerous time to start believing we have hit a bottom in the markets."
Over the weekend, finance ministers from G7 rich countries and G20 emerging powers held emergency meetings in Washington in a bid to find a solution to the financial crisis.
The International Monetary Fund head had issued a chilling warning on Saturday that global financial system had been brought "to the brink of systemic meltdown."
Leaders from the 15 eurozone nations agreed the outline of the measures at the emergency summit in Paris on Sunday.
In addition to setting up funds to buy into banks, the model foresees money being set aside to guarantee interbank lending and free up credit markets that have been left reeling by the US subprime mortgage crisis.
In Washington on Monday, US President George W. Bush vowed to pursue "responsible, decisive action to restore credit and stability and return to vigorous growth" as he met Italian Prime Minister Silvio Berlusconi.
Meanwhile Neel Kashkari, the US Treasury's pointman on the massive bailout, said Washington was ready to buy equity in a "broad array" of financial institutions in a further bid to restore confidence.
"As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions," he added.
Announcing details of the German rescue package Monday, Chancellor Angela Merkel said the measures being taken would only work if they were accompanied by improved international regulation that would end "market excesses."
"Today's measures are the first element of a new financial market charter ... but it can only be worthy of the name if it is followed by a second element, namely a change in international rules," she said after her cabinet approved the package.
French President Nicolas Sarkozy, who hosted a weekend summit for leaders of the 15-nation single currency eurozone, announced a 360-billion-euro rescue plan to pump capital into banks and underwrite loans between them.
France would guarantee up to 320 billion euros of interbank loans taken out until December 2009 and set aside up to 40 billion euros to recapitalize French banks, Sarkozy said.
"Money is not circulating anymore. We have to create the conditions to get it moving again," he said. "The greatest danger is not to take risks, it is to do nothing."
US economist Paul Krugman, who was awarded the Nobel Economics Prize on Monday, said he was "extremely terrified" by the crisis but his fears had been at least slightly allayed.
"I'm happier about it now than I was five days ago," said the Princeton University professor and New York Times columnist, a fierce critic of Bush's economic policy.