The United States will pump US$250 billion (Dh918bn) into its banks today, following similar measures in Europe, but data showed the threat of recession has not been banished even if a financial sector meltdown has. The US Treasury will unveil its plan later today with about half the total likely to go to the top nine US banks to get them lending to each other again, people familiar with the scheme said. The Federal Reserve chairman Ben Bernanke said in an article in the Wall Street Journal that the measures constituted a broad attempt to end the crisis, which began with a US housing market collapse and now threatens industry and jobs worldwide. "These steps will allow us to restore more normal market functioning and encourage private capital to further support the reinvigoration of financial markets," he wrote. London, Berlin and Paris offered direct capital injections for banks and to underwrite lending between banks that has all but frozen, choking off funds that ultimately drive private business and industry. Germany approved a rescue plan worth up to ?500bn (Dh2.4 trillion) and France put up a total of ?360bn. Britain, which has led the way with a twin blueprint of bank equity stakes and money market support, had already pledged £250bn to guarantee lending between banks and stumped up £37bn to buy into its troubled financial giants. Japan joined the global push, saying it could inject public funds into regional banks to make sure small firms can get cash while the Bank of Japan said it would hold an extraordinary meeting to consider ways of improving its operations to keep financial markets stable. Asian markets soared for a second day today, led by a stunning 13 per cent jump in Tokyo, after Wall Street rallied from its worst week ever on optimism that government rescue efforts will heal the crippled global financial system. Japan's benchmark Nikkei 225 index surged 1,127.11 points, or 13.62 per cent, to 9,403.54 by the afternoon- a stunning reversal after plunging nearly 10 per cent on Friday.
The Japanese financial markets were playing catch-up because they were closed yesterday for a holiday. In Australia, the S&P/ASX200 index traded 3.7 per cent higher as the government announced a plan to inject 10.4 billion Australian dollars (Dh27bn) to strengthen the country's economy. Hong Kong's key index gained 4.4 per cent, while South Korea's market jumped nearly 5 per cent. The Philippine market surged more than 7 per cent and Indonesia's market - shut half of last week due to dramatic declines - was up more than 6 per cent.
The Asian advance came after the Dow Jones industrial average gained more than 11 per cent - its biggest one-day gain since 1933 - in a huge overnight rally as traders reacted with relief to efforts by the US government to inject capital into banks and get lending flowing again. Late yesterday in the US, government officials and industry executives said the Bush administration will use US$250bn of the $700bn bailout programme recently passed by Congress to buy into American banks.
The government will initially buy stock in nine large banks, but the programme is expected to be expanded to many others. That followed signals that European governments were putting up nearly $2 trillion to safeguard their own banks. "The governments are ensuring that no matter what happens they're not going to allow another major institution to fail," said Nicole Sze, an investment analyst at asset manager Bank Julius Baer & Co in Singapore.
"What's happened in the last 48 hours is an extremely positive development. You're seeing a reversal of the panic selling, and we think a temporary bottom has been found." Stocks across Asia rocketed higher on Monday after going into a tailspin last week amid growing worries that the financial crisis would pull the global economy into recession. While those concerns still linger, investors were encouraged that governments appeared to be taking steps to tackle one of the core problems - helping to revive bank-to-bank lending, which has almost ground to halt because of fears about repayment due to enormous losses from souring mortgage-linked debt.
Oil continued to rise, with light sweet crude for November delivery gaining $1.98 to $83.17 a barrel in Asian trade on the on the New York Mercantile Exchange. The contract added $3.49 to settle at $81.19 overnight. *Reuters / AP
