Global Bank Rescue Aims to Halt Crisis Markets UpBy Reuters - | Posted 2008-10-13 Email Print
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The U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank said they would lend commercial banks as much U.S. dollar liquidity they needed.
NEW YORK (Reuters) - The world bet solidly on recapitalizing ailing banks as the fastest way out of the financial crisis, sending stock markets higher after their worst week in history.
Britain, Germany, France and other European countries announced multibillion-dollar plans to guarantee banks and take equity stakes, while U.S. officials said they were finalizing a similar plan.
U.S. stocks rose 7 percent, reversing direction after the Dow Jones industrial average fell 18 percent last week in a climate of panic and uncertainty as credit markets froze and major economies headed toward recession.
European stocks closed 10 percent higher.
"Sometime last week it seemed like we faced Armageddon, so to have a coordinated plan on stabilizing banks is huge progress," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
Wall Street also focused on investment bank Morgan Stanley , which reached a financing deal with Mitsubishi UFJ Financial Group Inc (MUFG), possibly with U.S. government support. Morgan shares soared more than 80 percent, after losing 58 percent last week.
In addition, the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank said they would lend commercial banks as much U.S. dollar liquidity they needed.
That had an instant impact on bank-to-bank lending rates, which eased, but there was still no clear evidence of funds cascading from banks to companies.
U.S. bond markets were closed for the Columbus Day holiday.
The euro and sterling gained strength on the European plans.
Oil rose more than $3 to $81 a barrel.
U.S. Treasury Secretary Henry Paulson was meeting with top Wall Street bankers on Monday in a scramble to finalize a plan to buy bank shares, an about-face from a previous focus on buying bad debt from banks.
British Prime Minister Gordon Brown shifted the world's thinking by proposing to inject new capital into banks to get them lending again.
The United States has since moved closer to the positions of European leaders, who were in Washington over the weekend for meetings of the Group of Seven major economies, the International Monetary Fund and the World Bank.