Up hill

Germany, France and other European countries on Monday unveiled bail-out plans to recapitalise their banks and reopen credit markets, following the British announcement of measures to nationalise parts of the UK banking system.

The world’s stock markets soared as details emerged of the co-ordinated European campaign to spend more than £1,434bn (€1,832bn, $2,477bn) on bailing out the continent’s troubled banks.

Other European stock markets followed suit as Germany, France, Austria, Portugal and the Netherlands announced their plans, Italy’s cabinet passed a new decree offering more support to the financial sector, and the Spanish government approved a guarantee for issues of new bank debt. Frankfurt’s Xetra Dax closed up 11.4 per cent, while the CAC 40 in Paris rose 11.2 per cent.

Europe’s central banks promised unlimited dollar funding in co-ordinated action with the US Federal Reserve. This dramatic further expansion of Fed liquidity operations is intended to ease the intense demand for dollars in Europe. The European Central Bank, Bank of England and Swiss National Bank said they were ready to inject as much as needed into the markets for dollar funding covering periods of seven days, a month and 84 days.

Confidence in the money markets showed signs of returning as the interbank cost of borrowing in sterling, euros and dollars fell. Three-month dollar Libor eased to 4.75 per cent from 4.82 per cent, its steepest drop since March and the first time it has fallen since last Monday when it was 4.29.

Wall Street also snapped back from last week's devastating losses after major governments announced further steps to support the global banking system, including plans by the U.S. Treasury to buy stocks of some banks. All the major indexes rose more than 8 percent, and the Dow Jones industrials rose more than 700 points.

In late afternoon trading, the Dow Jones industrial average rose 712.05, or 8.43 percent, to 9,163.24. It was the Dow's largest-ever point gain during a session, surpassing the jump of 503.45 points seen on Sept. 30.

The Dow's largest point increase by the time the closing bell sounded occurred March 16, 2000, during the waning days of the dot-com boom, when the blue chips closed up 499.19, or 4.93 percent.

Broader stock indicators also jumped Monday. The Standard & Poor's 500 index advanced 78.71, or 8.75 percent, to 977.93, and the Nasdaq composite index rose 146.86, or 8.90 percent, to 1,796.37.

About 2,900 stocks advanced on the New York Stock Exchange, while about 250 declined. But the trading volume of 1.22 billion shares was lighter than it had been last week, suggesting there was less conviction in the buying than during last week's selling.

Wall Street was cheered by word from the Bank of England that it would use up to $63 billion to help the three largest British banks strengthen their balance sheets.

The Bank of England, the European Central Bank and the Swiss National Bank also jointly announced plans to work together to provide as much short-term funding as necessary to help revive lending.

After a series of weekend meetings in Washington of heads of the Group of Seven nations, the gains in global markets signaled that investors found comfort from the actions and pledges coming from government officials.

The surge in stocks comes after a dismal week on Wall Street that erased an estimated $2.4 trillion in shareholder wealth. The Dow, after eight consecutive daily losses that totaled just under 2,400, or 22.1 percent, finished at its lowest level since April 2003, and also suffered its worst weekly percentage loss ever, a fall of 18.2 percent.

Meanwhile, the S&P 500 and the Nasdaq each lost 15.3 percent last week.