PARIS, October 13 – European leaders agreed a plan that would inject billions of dollars into troubled banks in an attempt to restore confidence in the financial system, leading to a cautious rebound in Asian markets Monday.
Meeting in Paris, governments from the 15 nations that use the euro promised to tackle the crisis together, buying into banks by taking preference shares and guaranteeing inter-bank lending to help increase liquidity.
The United States was reportedly also heading towards taking direct stakes in threatened banks in the coming days.
Precise details of the emergency European measures were not released, but French President Nicolas Sarkozy said governments would reveal more on Monday.
Officials have said the package will cost several hundred billion dollars on top of the huge sums already spent rescuing banks and propping up the money markets.
The European talks came after leaders from the Group of Seven richest economies pledged to key financial institutions, take measures to get credit flowing, assist banks in raising capital and reassure savers.
The measures were met by investors with guarded optimism, prompting a rally on Asia\’s biggest markets, with Sydney and Hong Kong both gaining and recovering some of their massive losses from last week\’s marathon sell-off.
Hong Kong\’s benchmark Hang Seng Index ended the morning up 3.2 percent at 15,275.67, while in Sydney, the benchmark S&P/ASX 200 closed up 5.6 percent at 4,180.7 and Seoul finished 3.8 percent up. The Tokyo market was closed for a public holiday.
New Zealand shares, however, fell 0.82 percent, while Taiwan was off 2.15 percent on lingering concerns about the state of the global economy.
All eyes were on the US and European markets, to see if the moves would calm panicked investors and provide some desperately sought-after stability following weeks of market turmoil.
In Washington, the EU measures won swift praise from International Monetary Fund chief Dominique Strauss-Kahn, who said the IMF had been calling for months for coordinated international action to the brewing crisis.
"Nearly all advanced countries are now covered and the… eurozone provisions may be extended eventually to all of Europe," he said.
"The eurozone plan is also comprehensive… Altogether we are going in a good direction."
In London, reports said the British government would be taking controlling stakes Monday in two banks hit hard by the crisis — Royal Bank of Scotland and HBOS.
Britain has already set aside 250 billion pounds (425 billion dollars) to guarantee loans, in addition to 200 billion pounds in short-term loans and 50 billion to buy stakes in major banks.
However, Barclays, one of Britain\’s leading banks, said Monday it planned to raise more than 6.5 billion pounds from investors, turning down the government rescue offer.
"I believe that in the next few days confidence in the banking system will be restored…. The decisions we take over the next few days will affect us for the years ahead."
Germany was meanwhile expected to guarantee interbank loans with 300 billion euros to 400 billion euros (405 to 540 billion dollars) as well as provide banks with fresh capital in exchange for shares.
German Chancellor Angela Merkel said only the state could restore "the necessary trust" to the public and financial markets.
In Paris, the French government will Monday propose a state guarantee for endangered banks, a ruling party lawmaker said.
Elsewhere, Australia, New Zealand, Portugal and the United Arab Emirates all moved to guarantee bank deposits, and Norway said it would issue up to 41 billion euros in bonds to pay for measures to support banks.
World Bank President Robert Zoellick said the financial crisis, the worst since the 1929 market crash, underscored the need for coordinated action to "modernise multilateralism for a new global economy."
Coordination against the crisis is considered vital to prevent the actions of one country harming another and exacerbating the bank solvency and credit shortage problems.
Oil prices moved higher, with New York\’s main contract, light sweet crude hitting 80.15 dollars a barrel in Asian trade, recovering from 12-month lows on Friday.