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Monday, October 13, 2008

European Bail-out Package Causes Global Stocks to Soar

Global stocks soared in their biggest one-day advance in at least 20 years on Monday while oil prices jumped after European governments took bold steps to restore market confidence and avert a worldwide recession.

U.S. stocks were headed for their biggest percentage gain in a single day since two days after the Black Monday crash of October 1987, and the FTSEurofirst 300 index of top European shares surged by a record 10 percent.

Crude oil jumped along with other commodities and euro zone government debt prices fell as the European rescue packages -- which are designed to shake the global financial crisis out of a deep credit freeze -- took away a flight to safety bid.

Britain, Germany, France, Italy and other European governments pledged hundreds of billions of dollars to boost flagging confidence in the world's creaking financial system.

The U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank also said they would lend commercial banks as much U.S. dollar liquidity as they needed to ease clogged interbank lending rates.

With luck the European measures will help stop investors from framing decisions on an hour-by-hour basis and form longer-term outlooks, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

"Sometime last week it seemed like we faced Armageddon, so to have a coordinated plan on stabilizing banks is huge progress," Ablin said. But "it's clearly an oversold bounce."

MSCI's all country world index surged more than 7 percent, its biggest one-day percentage gain in at least two decades.

The Dow Jones industrial average rose 579.52 points, or 6.86 percent, at 9,030.71. The Standard & Poor's 500 Index was up 64.17 points, or 7.14 percent, at 963.39. The Nasdaq Composite Index was up 120.26 points, or 7.29 percent, at 1,769.77.

In the United States, Treasury Secretary Henry Paulson said Washington was developing plans to buy equity in financial institutions to halt the prolonged market turmoil.

Battered financial stocks were among the biggest gainers on both sides of the Atlantic.

Morgan Stanley vaulted 75 percent after Japan's Mitsubishi UFJ Financial Group said it would go ahead with its plan to pay $9 billion for a 21 percent stake in the former investment bank, now a bank holding company.

In Europe, Swiss CS Group rose 28 percent, Dutch ING Group climbed 27 percent, Swiss Re rose 21.6 percent and Standard Life advanced 20.5 percent.

Shares of General Motors climbed almost 33 percent following news that the company -- the largest U.S. automaker -- had held merger talks with rivals Chrysler LLC and Ford Motor Co . Ford's shares rose 25 percent.

The FTSEurofirst 300 index of top European shares closed 10.1 percent higher at 937.41.

In Britain shares of banks taking part in the bailout -- notably HBOS , Lloyds TSB and Royal Bank of Scotland -- fall sharply. HBOS fell 27.5 percent, Lloyds TSB sank 14.5 percent and RBS lost 8.4 percent.

Gold at first rose as the dollar slipped, lifting its appeal as an alternative investment, but later fell, while commodities recovered broadly after Friday's rout, with industrial metals, sugar, grains and coffee all rising.

Analysts said Europe's bold steps, which many said eclipsed weekend pledges by ministers of the Group of Seven industrial nations of action and coordination, should successfully tackle the lending paralysis over time.

"It's enough to get these money markets up and running again," said David Keeble, head of rates strategy at Calyon in London. "But it might take a few weeks to get it filtering through to the coal face, as it were," he said.

The euro surged as much as 1.8 percent from a 1-1/2-year low against the dollar, and the interbank cost of borrowing in sterling, euros and dollars fell as confidence in money markets showed signs of returning.

The euro rose 0.64 percent at $1.3498.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index up 0.14 percent at 81.892. Against the yen, the dollar rose 0.41 percent at 101.05.

U.S. light sweet crude oil rose $3.66 to $81.36 a barrel.

Spot gold prices fell $8.80 to $838.60 an ounce.

Asian stocks jumped over 7 percent, according to MSCI's index of Asia-Pacific stocks outside Japan , after tanking more than 20 percent last week to the lowest since December 2004.

Japanese markets were closed for a holiday and the U.S. Treasury market was also closed, for the Columbus Day holiday.

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