World stocks rally after Bank of America bailout
By PAN PYLAS
AP Business Writer
LONDON (AP) – World markets rallied Friday as investors breathed a sigh of relief that Bank of America, the biggest bank in the U.S., has been bailed out by the federal government as it tries to absorb losses from its acquisition of Merrill Lynch.
Markets across the world have posted heavy losses this week on renewed fears about the financial health of the global banking system, which became more acute Thursday in the run-up to the Bank of America bail out.
However, confirmation that the U.S. government would invest $20 billion in Bank of America in exchange for preferred stock and underwrite $118 billion of loans, provided much-needed relief to the markets.
The FTSE 100 index of leading British shares was 79.55 points, or 1.9 percent, at 4,200.66, while Germany’s DAX jumped 107.25 points, or 2.5 percent, to 4,443.98. Meanwhile the CAC-40 in France was up 81.24 points, or 2.7 percent, to 3,077.12.
Earlier, Japan’s Nikkei 225 stock average added 206.84 points, or 2.6 percent, to 8,230.15, while Hong Kong’s Hang Seng edged higher 12.55 points, or 0.1 percent, to 13,255.51.
Despite the comeback on Friday, investors remain worried about the problems facing the banks around the world. Citigroup Inc. is expected to unveil a massive restructuring alongside further dire quarterly earnings, while in Britain there’s mounting talk that the government is looking to create a “bad bank” where all toxic assets will be dumped.
Stock markets around the world had started 2009 on a relatively strong footing, glad to have put the previous year behind them and hopeful that the incoming Obama administration would be able to limit the length and depth of the recession in the U.S. with its massive stimulus plan.
Those hopes of a turnaround in the world economy by the middle of this year have evaporated as investors grappled amid increasingly grim economic and corporate data from across the world.
“It’s tough to light a match in a downpour, and early-year flickering of a financial market candle of hope has been washed out,” said Paul Mortimer-Lee, global head of market economics at BNP Paribas.
“A river of woeful economic news over recent weeks has not helped, but it is concerns over the dark clouds still clustered over the financial sector that are the real worry,” he added.
Nevertheless, the Bank of America news has put those fears to bed for now and U.S. stocks are expected to continue their late session recovery from Thursday.
Dow Jones futures were 122 points, or 1.5 percent, higher at 8.284, while the broader Standard & Poor’s 500 futures rose 13.60 points, or 1.6 percent, to 852.90.
The markets will also be keeping a close eye on developments in Washington ahead of Tuesday’s inauguration of President Barack Obama. Allies of Obama have unveiled an $825 billion recovery bill – two-thirds spending and one-third tax cuts – to help jump-start the world’s largest economy.
In London, investors were keeping a close eye on how the expiry of the short-selling ban in financial stocks was affecting trading. So far, there is little evidence of any unnatural movements as financial stocks have rallied like other stocks.
“The sector is going to be under increased scrutiny as we look to see whether the market is set to take advantage of this, or if indeed there’s simply too much value has been taken out of these stocks already,” said Matt Buckland, a dealer at CMC Markets.
Elsewhere in Asia, the Shanghai Composite Index climbed 1.8 percent, while benchmarks in South Korea, Singapore, Australia, Taiwan and India also advanced.
Oil prices continued to fluctuate with crude light, sweet crude for February delivery up 24 cents at $35.64 a barrel. Overnight, the contract fell 5 percent, or $1.88, to settle at $35.40, swooning as low as $33.20 during the session to a near five-year low.
The dollar strengthened 0.8 percent 90.48 while the euro rose 0.9 percent to $1.3254.
AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.
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