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London/New York : World stock markets soared yesterday after Washington announced a bailout of mortgage giants Fannie Mae and Freddie Mac - a move that could help bolster a shaky US housing market and renew global investor confidence.
Wall Street rallied yesterday after the US government nationalised ailing mortgage finance giants Fannie Mae and Freddie Mac in an unprecedented bid to avert a financial system meltdown.
The Dow Jones Industrial Average jumped 213.49 points (1.90 per cent) to 11,434.45 around in 1511 GMT and the tech-heavy Nasdaq composite rose 9.77 points (0.43 per cent) to 2,265.65.
By mid-afternoon in Europe, Germany's DAX had jumped 3.41 per cent to 6,336.52 and France's CAC 40 climbed 4.63 per cent to 4,390.97.
Trading on the London Stock Exchange (LSE) was halted because of a computer fault but Britain's FTSE 100 had risen 3.81 per cent to 5,440.20 before trade stopped.
"It was a very broad rally," said Lawrence Peterman, investment director at Eden Financial in London. "All the banks are up strongly on the back of the US news at the weekend." Shares in HSBC Holdings Plc, Europe's largest bank by market value, advanced 5 per cent. HBOS Plc, one of Britain's biggest mortgage lenders, rose 12.98 per cent, and Barclays Plc, the country's third largest bank, 11.90 per cent.
Over in Asia, Japan's benchmark Nikkei 225 index surged 3.4 per cent to 12,624.46, while Hong Kong's Hang Seng index advanced 4.3 per cent to 20,794.27. Seoul's Kospi rose 5.2 per cent.
The US Treasury's decision on Sunday to take control of the two financial institutions, which own or guarantee about half of US mortgage debt, removes a big cloud that had been weighing on global markets. With investors growing increasingly anxious over fallout from the US credit crunch, global markets had been volatile.
Jacky Choi, a Hong Kong-based fund manager at Value Partners Ltd., which manages about $5 billion in assets in Asia, said the bailout comes as a relief to the many Asian governments and institutions with the mortgage giants' debt on their books.
"It's a must for the US government," he said of the plan. "The Japanese and other governments are holding all these Freddie and Fannie bonds. It would really hurt the global economy and financial system" if the US government didn't act.
Choi, however, noted that yesterday's surge didn't necessarily foreshadow a broader turnaround and noted that trading volumes weren't very large in some markets. Many investors were still hesitant to place long-term bets, he said.
"People are still reluctant. It takes time for sentiment to recover in a market like this." For now, the news injected life into financial issues, with major Asian banks the big winners of the day.
Japanese megabank Mitsubishi UFJ Financial Group, Inc. shot up 13 per cent, Sumitomo Mitsui Financial Group, Inc. jumped 15, and Mizuho Financial Group, Inc. rebounded 12 per cent. In Sydney, the Commonwealth Bank of Australia rose 7.9 per cent, and National Australia Bank was 6.4 per cent higher.
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It was a very broad rally. All the banks are up strongly on the back of the US news at the weekend."
Lawrence Peterman
Investment director at Eden Financial in London
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