Global stock markets roared higher on Friday after news of a possible United States government plan to rescue banks from toxic mortgage debt raised a collective sense of hope amid the world’s worst financial crisis in decades.
Europe exchanges, which had spent nearly all of this week drowning in declines, responded with ferocity to the possible plan, surging as battered bank stocks rebounding along with them.
The news of a likely US lifeline, along with new changes to short-selling in the US, Britain, Australia and Ireland, also helped push markets higher, analysts said.
Early on Friday, the US Securities and Exchange Commission took the dramatic step of temporarily banning the routine practice of betting against company stocks, announcing the move on its website.
The commission said it was acting in concert with Britain’s Financial Services Authority in taking emergency action to ”prohibit short-selling in financial companies” to protect the integrity of the securities market and boost investor confidence.
”The short-term changes to short-selling are certainly giving markets and regulators room to breathe,” said Keith Bowman, equity analyst Hargreaves Lansdown Stockbrokers. ”But there is going to be a significant number of hurdles to overcome for this temporary measure to prove useful at solving the fundamental problems over the long term.”
Money injection
Another factor was moves by the European Central Bank, Swiss National Bank and Bank of England to offer up more cash on Friday. The three banks put a combined $90-billion into money markets in a lockstep move.
London’s FTSE jumped more than 7%, led higher by Lloyds TSB, which gained about 30% in trading only a day after sentiment about its financial strength hobbled its appeal.
In Frankfurt, the DAX index sprung more than 4% higher with shares of Commerzbank AG and Deutsche Bank AG leaping 18,6% and nearly 16%, respectively.
The Irish Stock Exchange responded with its biggest burst in Dublin trading history, rising more than 25% in the first hour. The financials-heavy index soon settled back on profit-taking, but remained up nearly 12% at 4 175 in mid-morning trade.
The most dramatic gains were scored by Anglo-Irish Bank, a niche lender that had been heavily targeted by short-sellers in recent weeks, knocking two-thirds off its market capitalisation.
Anglo-Irish stock value initially surged by an incredible 120%, then settled back, still up more than 35%. Allied Irish rose by 19,7%, Bank of Ireland by 28,3% and Irish Life & Permanent by 21,6%.
Irish regulators also banned short-selling on the stocks of the country’s four largest financials: Allied Irish Banks, Bank of Ireland, Irish Life & Permanent and Anglo-Irish Bank Corp.
Australia’s securities regulator joined its counterparts in the US and Britain in curbing the short-selling of shares. The Australian Securities and Investments Commission ruled that from Monday a temporary ban on what’s called naked short-selling would take effect.
Russian exchanges suspended
Russia’s leading stock exchanges suspended trading for a second time in several hours after stocks rose too sharply. Earlier on Friday, trading was suspended on both the RTS and Micex within an hour of opening, in line with exchange rules. They reopened after an hour only to close again.
Micex, where most share trading takes place, was up 25,4% since the start of Friday after a two-day suspension. The RTS was up 20,2%. Both indexes were closed on Wednesday for two days after the Micex suffered one-day losses on a scale not seen since Russia’s 1998 financial collapse. It plunged 25% in just two-and-a-half days on the back of tumbling oil prices and Wall Street turmoil, and was down more than 55% since its May peak.
Austria’s ATX surged past 9% in early afternoon trade after opening about 8% higher earlier on Friday. In Madrid, the SMSI was up nearly 6,2% while Swedish shares climbed 6,8% higher in Stockholm. In Belgium, shares gained 7,5% on the Euronext Bel-20.
Across Asia, similar spikes were seen around the region. Hong Kong’s Hang Seng Index surged by a stunning 9,6% to 19 327,73, while Japan’s Nikkei 225 average rose by 3,8% to 11 920,86.
In China, the Shanghai benchmark jumped by 9,5% — its biggest gain to date — after the government eliminated a tax on share purchases and said it was buying shares in state-owned banks.
US solution
The global turnaround came after investors took to heart word that the US government was seeking the power to rescue banks by buying distressed assets at the heart of the financial system turmoil that has brought down Wall Street giants Lehman Brothers, Merrill Lynch and Bear Stearns.
Details of the plan were still being worked out, but US Treasury Secretary Henry Paulson emerged from a nighttime meeting on Capitol Hill on Thursday to say he hoped to have a solution ”aimed right at the heart of this problem”.
”It definitely gives investors a light at the end of the tunnel,” said Daniel McCormack, a strategist for Macquarie Securities in Hong Kong. ”The solution is of such a magnitude that it could eventually fix the problems … That’s hugely important at the moment because that’s what markets are focused on.”
Oil prices were above $100 a barrel on Friday, with light, sweet crude for October delivery rose by $2,16 to $100,04 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. Overnight, the contract rose by 72 cents to settle at $97,88.
The euro fell to $1,4221 in European trading from the $1,4247 it bought in New York late Thursday.
The British pound drifted down to $1,8019 from $1,8076, while the dollar rose to 107,40 Japanese yen from 106,19 yen. — Sapa-AP