Optimism grew on Tuesday that the global financial crisis was being brought under control as stock markets surged in expectation of another government spending package to kick-start the United States economy.
Markets in Europe and Asia all enjoyed bounces as the head of Australia’s central bank said the danger of a “global catastrophe” had decreased after world governments intervened to boost liquidity and confidence.
“At moments like this, it is hazardous to make predictions,” said Reserve Bank of Australia Governor Glenn Stevens.
“However, it seems to me that the key elements of dealing with the root issues in the crisis are starting to come into place.”
US President George Bush said Monday he thought the “near panic” was easing as government-led economic rescue efforts paid off.
“I have heard that people’s attitudes are beginning to change, from a period of intense concerns — and I would call it near panic — to being more relaxed.”
People are “beginning to see the effects of changes and the liquidity that is being pumped in the system”.
Stock markets have been through a rollercoaster ride in recent weeks and initially responded coolly to packages designed to prevent banks from collapse and encourage them to begin lending to each other again.
With the packages now beginning to kick in, stock markets have begun to recover some of their recent losses.
After Wall Street’s main Dow Jones index gained 4,67% on Monday, stocks in Tokyo were up by 3,34% while all the main European markets enjoyed gains in early trading.
France gained 1,97% in early trading, Frankfurt 0,81% and London was more than 1% up before easing back to stand 0,06% down.
Analysts said markets were responding to remarks by the US Federal Reserve chairperson, Ben Bernanke, in favour of a plan to stimulate the US economy, and supporting remarks from the White House.
“With the economy likely to be weak for several quarters and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate,” Bernanke told a Congressional committee.
The US government announced a $700-billion bank bailout plan last month that was later dwarfed by European guarantees to the financial sector worth more than a trillion dollars.
However, unease in the banking sector was hardly helped by news that an executive for Chinese government-backed investment firm Citic Pacific had made improper currency bets that could lose the firm up to $2-billion.
Citic shares hit a 10-year low on the news.
The latest example of state intervention came in South Korea where the government said it would spend about five trillion won ($3,78-billion) to boost the slumping construction industry.
The government has already unveiled a $130-billion package to stabilise local financial markets.
The construction plan is the first of its kind since the East Asian financial crisis a decade ago, illustrating the depth of the downturn.
The crisis has triggered growing calls for an overhaul of the global financial system, with French President Nicolas Sarkozy persuading Bush at the weekend to hold a series of summits devoted to the issue.
Speaking on Tuesday in Strasbourg, headquarters of the European Parliament, Sarkozy said he wanted European Union leaders to meet again to prepare the first of the summits next month on reforming the international financial system.
Sarkozy also called for the creation of an “economic government” for the 15 nations inside the single currency eurozone, which would work alongside the European Central Bank.
Meanwhile, France and Germany led an offensive to bring tax havens into line with world banking rules at a Paris meeting seen as a first attempt to put order in global finance.
But Switzerland and Liechtenstein, two countries often criticised for their opaque bank secrecy laws, decided to boycott the meeting organised by the Organisation for Economic Cooperation and Development (OECD). — AFP