President Bush said Tuesday that the government will use part of the $ 700 billion rescue to inject capital into the nation’s major banks, which have been slammed by souring mortgage investments. The move follows a similar announcement on Monday by European governments to invest around $ 2 trillion in their own banks in difficulties.
The revision of the rescue plan differs from the previous to the extent that aspires to recapitalize the banks, not only to buy assets in difficulties over its books at prices that could leave banks with losses.
“This starts to penetrate into the heart of the problem,” said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.
However, he said, “there will be a time when the euphoria of the rescue plan begins to disappear and the market begins to face reality. And that reality is likely to be a sour earnings season, and that the economy is in recession “.
Therefore, while the markets are enjoying a big rebound, stock trading can view the current volatility in the coming weeks and months. The Dow is still 33.7 percent below its October 9, 2007 record close of 14164.53, and could falter around these levels for some time as investors wait for signs of stabilization in the fall of housing market and deteriorating labor market.
Cardillo said he considers the worst casualties are behind the stock market, but other analysts have refused to say on Wall Street had reached a bottom. The Dow still has not fallen below its low during the last bear market, the closing level of 7286.27 on Oct. 9, 2002.
After the Columbus Day holiday, the U.S. government bond markets are opening again on Tuesday and investors that indicates that the desire for the security of the assets remains strong, but leaving it slightly. The three-month Treasury bill’s yield rose to 0.55 percent from 0.21 percent late Friday, and the 10-year note’s yield rose to 4.05 percent from 3.86 percent.
Banks seem to be becoming a little more willing to lend to one another. The London Interbank Offered, or Libor, for three months in dollar loans fell to 4.64 percent from 4.75 percent, after a 0.07 percentage point dip on Monday. Libor is important because many consumer loans, including about half of all adjustable-rate mortgages, are linked to it.
Asian and European markets shot higher after Wall Street on Monday, propelling the Dow to its biggest one-day each location. The Dow’s advance Monday for a long surpassed its previous record of one day in advance, 499.19, marking during the last days of the dot-com boom in 2000.
Hong Kong Hang Seng index rose 3.19 percent, after more than 10 per cent increase on Monday. Japan’s Nikkei index, from capture to the country’s market holiday Monday, jumped 14.15 percent – the largest increase ever. The Bank of Japan said it will hold a policy of non-scheduled board meeting Tuesday at 8:30 pm local time, or 9:30 a.m. Eastern Time, to discuss the latest developments in world markets.
And in the morning trading in Europe, UK FTSE 100 rose 5.63 percent, the German DAX index rose 5.57 percent, and France’s CAC-40 climbed 5.75 percent
U.S. stock market has been recovering from a horrible week that erased about $ 2.4 billion in shareholder wealth. The Dow came against an eight-day losing streak that point accumulated losses of just under 2400, or 22.1 per cent, bringing the blue-chip index to its lowest level since April 2003. That 18.2 per cent weekly plunge in the Dow was the worst in the index of 112 years of history.
The recent sell-off in stocks came amid a draw-in loan, as banks and investors from around the world grew fearful about the solvency of other institutions following the collapse of investment bank Lehman Brothers Holdings, Inc and the lack of savings bank Washington Mutual Inc. When the loan is at a virtual standstill, the economy can not grow.
With investors worried that the regional banks in the U.S. could be the next to fall, the decision of Madrid-based Banco Santander late Monday to buy Philadelphia-based Sovereign Bancorp Inc. savings was another relief. The Spanish bank, which already owned a 25 percent stake in Sovereign, bought the rest of the bank at a premium of $ 1.9 billion.
The dollar fell against other major currencies, while oil prices rose along with stocks. Crude oil rose 3.31 dollars to 84.50 dollars a barrel in electronic pre-trade on the New York Mercantile Exchange.