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World stocks rally after Bank of America bailout

business Updated: Jan 16, 2009 16:05 IST

AFP
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Global equities rebounded on Friday as investors welcomed the latest 20-billion-dollar capital injection for Bank of America after its purchase of brokerage Merrill Lynch, analysts said.

Markets were eagerly awaiting results from US banking giants Bank of America and Citigroup, which have both brought forward their latest quarterly earnings statements from next week, amid concerns about their financial health.

"Market sentiment has been lifted after the US authorities announced plans to provide financial aid to Bank of America which has been struggling to digest the purchase of Merrill Lynch," said economist Lee Hardman at The Bank of Tokyo-Mitsubishi UFJ in London.

Wall Street, which reopens at 1430 GMT, had ended a losing streak overnight on renewed optimism about president-elect Barack Obama's plans to revive the US economy.

In European morning trade, London was up 2.01 per cent, Frankfurt advanced 2.63 per cent and Paris was 2.80 per cent higher, snappling this week's run of very heavy losses as investors fretted over the prospect of a very deep global recession.

Friday's gains were capped by nervousness ahead of corporate earnings results in the United States and Japan that are expected to reflect the rapidly worsening business conditions in recession-ridden major economies.

Tokyo's Nikkei index jumped 2.58 per cent by the close, bouncing back from the previous day's near six-week low, while Hong Kong inched up 0.1 per cent.

"The survival of banks has yet again become the foremost issue for financial markets," said Barclays Capital analyst David Woo.

"There has been a rout in bank shares over the past few days, especially in the United States.

"The concerns have been mainly related to the ability of the two largest banks, Citigroup and Bank of America to absorb large credit losses.

"Both have moved up their earning released to today, so the focus for markets is likely to remain on this issue for now."

Elsewhere in Asia, Sydney posted a gain of 0.7 per cent, Singapore rose 1.55 per cent and Taipei was up 0.76 per cent.

Chinese shares rose 1.78 per cent, led by manufacturers and ship builders on hopes for fresh domestic stimulus measures to support the two sectors.

Asian and European stock markets had fallen sharply on Thursday following a slew of poor economic and corporate news.

On Thursday, five days before becoming president, Barack Obama won a major boost when the US Senate agreed to release financial bailout funds and Democratic lawmakers unveiled an 825-billion-dollar recovery plan.

The Senate voted to clear the release of the second half of a 700-billion-dollar financial bailout package devised under the Bush administration.

The request was filed on Obama's behalf by outgoing President George W Bush to access the 350 billion dollars. Obama takes office on January 20.

Democratic lawmakers also unveiled a massive 825-billion-dollar financial package to jolt the world's biggest economy out of a deepening recession.

"Stocks are likely to react favourably to the US Senate's rejection of a resolution that would have prevented the release of 350 billion dollars in rescue funds for the US economy," said Calyon analyst Stuart Bennett.

"The decision keeps President-elect Obama on course to instigate his planned stimulus package over the coming weeks."

The Dow Jones Industrial Average finished on Thursday with a gain of 0.15 per cent, ending a string of six consecutive losses for the blue-chip index.

Markets digested news of more difficulties for US firms including a 76 per cent drop in fourth-quarter profit at JPMorgan Chase, Apple chief executive Steve Jobs's medical leave and 4,000 more job cuts at Motorola.

On the economic front, US producer prices fell 1.9 per cent, highlighting concerns about the weak economy and potential deflation, while the number of weekly jobless claims rose 11.5 per cent to 524,000.

Dealers said an interest rate cut on Thursday of half a percentage point, to 2.00 per cent, by the European Central Bank was in line with expectations and had had no discernible impact on sentiment.