Markets rally as faith grows in authorities' plan of action

Global stock markets rally, including the all-time biggest one-day jumps for the Dubai Financial Market and the Abu Dhabi Securities Exchange. In New York, the Dow Jones gains more than 11 per cent - its biggest one-day gain since 1933. Asia markets join trend with a 13 per cent jump in Tokyo. Gains come amid perceptions governments are finally coming up with measures to calm the international financial crisis.

A trader captures the spirit of the day as he monitors stocks at the Dubai Financial Market.

Global stock markets rallied yesterday, including the all-time biggest one-day jumps for the Dubai Financial Market and the Abu Dhabi Securities Exchange, amid perceptions governments are finally coming up with the right measures to calm the international financial crisis. In the UAE, the Government yesterday took new measures to bolster the financial system. A day after guaranteeing domestic banks and their deposits, it extended those assurances to foreign banks with "significant operations in the UAE" and specified a three-year time period for the guarantees.

The measures are intended to encourage banks to resume lending to each other and assure depositors that their money is safe. "This positive move by the Government has instilled new confidence in investors and traders, and has provided the much-needed push to the markets," said Vyas Jayabhanu, the head of the broker Al Dhafra in Abu Dhabi. "The banking sector in particular was up and this is good news for the overall market."

The local moves dovetailed with actions that leaders in the US, Europe and many other countries took to shore up their banking systems. Global markets seemed particularly buoyed by the level of co-ordination that European governments displayed in pursuing similar plans to protect major banks by making massive capital investments in them, while guaranteeing deposits and in some cases lending between banks.

The US government is also now considering purchasing equity in its banks. This led to the Dow Jones industrial average gaining more than 11 per cent - its biggest one-day gain since 1933 - in a huge overnight rally. Today, the trend continued in the Asia markets as they soared for a second day, led by a massive 13 per cent jump in Tokyo. Yesterday, Hong Kong's Hang Seng index rose 10.24 per cent, while Singapore gained 6.5 per cent and Sydney had put on five per cent. Markets followed suit in Europe, with the London FTSE Index rising 7.1 per cent, the German DAX climbing 11.4 per cent and French CAC up 11.2 per cent. Gulf markets rose as well. The Dubai Financial Market (DFM) climbed 10.5 per cent, its biggest one-day rise since it opened in early 2004. The Abu Dhabi Securities Exchange (ADX) rose 6.9 per cent, with banking stocks leading the rally as the exchange posted its biggest one-day jump in its seven-year history. The Saudi Tadawul gained 9.1 per cent.

The rallies came amid investor relief that authorities are responding as the credit crisis looks likely to hurt GCC growth prospects, although not as badly as elsewhere. "We are going to see a slowdown in the UAE economy; we are not going to continue to grow at the rapid pace seen over the past few years," said Marios Maratheftis, the regional head of research for Standard Chartered bank in the Middle East, North Africa and Pakistan.

The bank estimates real economic growth will slow to 2.7 per cent next year, from an estimated 4.8 per cent this year and 9.6 per cent in 2006. Still, compared to the US and Europe, where economies are widely expected to contract, "it is still a positive rate of growth and something we should be proud of and happy with", Mr Maratheftis said. The prospect of a prolonged credit crunch and slower growth has focused concern about the debt levels of some companies, particularly in Dubai, where the Government and its corporate arms have borrowed extensively to finance projects and infrastructure spending.