LONDON (AFP) – Global equity markets soared on Friday, lifted by mammoth share price gains for banks, as governments worldwide stepped up their fight against the worst financial crisis in decades, traders said.
The European Central Bank and Bank of England meanwhile each lent an additional 40 billion dollars (28 billion euros) to financial institutions struggling to obtain funds amid a worldwide squeeze on credit.
In early European trade Friday, London surged 6.88 percent, Paris won 5.40 percent and Frankfurt rallied by 3.87 percent.
British bank HBOS, which on Thursday was rescued by peer Lloyds TSB in a multi-billion dollar takeover, saw its share price spike 35 percent on London’s FTSE 100 index.
“The creation of a huge government sponsored vehicle to take on so-called toxic investments in the US, short selling restrictions in the UK and incentives to encourage investing in equities in China are all having a positive effect on markets,” said CMC Markets dealer Matt Buckland.
“The combined efforts are so great that there seems to be a coherent belief that this could actually be sufficient to draw a line under what has been a tumultuous 18 months for the markets.”
Hong Kong shares closed up 9.6 percent on Friday as markets across Asia rallied on news that the United States would throw banks a lifeline to deal with bad debts.
The Shanghai market soared by nearly 9.5 percent, also after China abolished a tax on stock transactions, hoping to reverse a slide on the bourse that threatened to affect millions of middle-class Chinese. Tokyo closed up 3.76 percent on Friday.
“The rally is a combination of a knee-jerk reaction to the reports of the new rescue plan and a mere tracking of movement on Wall Street,” said Seiichi Suzuki, market analyst at Tokai Tokyo Securities.
“Market participants are also looking at key futures indexes on Wall Street, because it is hard for players in Asia to digest fully the impact of the latest developments related to the global credit crisis,” he added.
Investors took encouragement from emergency meetings in Washington on the financial crisis set off by risky housing loans to “subprime” customers who now cannot make mortgage payments.
The US government was reportedly preparing to create a new entity to rescue troubled financial firms. Washington this week let Wall Street titan Lehman Brothers collapse, sending global markets into a tailspin.
“Such a plan would potentially provide a long-term solution to the credit crisis,” said John Kyriakopoulos, a strategist at National Australia Bank Capital.
Central banks worldwide have this week pumped hundreds of billions of dollars into money markets left severely unsettled by the collapse of Lehman Brothers and rescuing of US investment bank Merrill Lynch and insurance giant AIG.
Stocks also got a boost Friday after British and New York state authorities temporarily banned short-selling — when a dealer sells a borrowed stock to profit from an anticipated price drop.
On Wall Street, the Dow Jones Industrial Average vaulted 3.86 percent Thursday.
Officials from the US Treasury Department, Federal Reserve and Congress met Thursday to discuss a “comprehensive approach” to rid financial institutions of bad assets at the root of the current credit crisis, Treasury Secretary Henry Paulson said.
US media reports said he was considering a bailout by taxpayers like that used in the savings and loan crisis of the 1980s and 90s.