European stocks rallied on Friday and notched huge gains after the US government announced plans to spend hundreds of billions of dollars to restore financial stability in stricken capital markets.
The German DAX index in Frankfurt on Friday dramatically regained previous losses
The Paris Bourse registered its biggest one-day gain since the CAC 40 index was created 20 years ago, while in London the leading the FTSE index rocketed 431.3 points to 5311.3 - a rise of 8.8 per cent.
That made Friday the blue chip index's biggest one-day rise since it was established in 1984, while in Paris the benchmark closed up 9.27 per cent, to end the day at 4,324.87.
The bellwether German DAX index in Frankfurt was running at 6189 by evening, up more than 5.5 per cent from the previous day's close, and dramatically regaining much of the earlier losses in the week.
Russian share trading had to be suspended twice on Friday when stocks soared uncontrollably, following deep lows during the week. Nordic bourses also surged.
The mood was euphoric in stock exchanges around Europe on Friday
The Stockholm bourse index opened up over 5 per cent with banking shares posting double-digit increases, and shortly before closing the index had gained almost 8 per cent.
Telecommunications equipment maker Ericsson increased some 5 per cent while clothes retailer Hennes and Mauritz was up 7 per cent.
The main Oslo index surged 6 per cent in opening trading with strong performances from banking sector shares. Near closing time the index had climbed over 8 per cent. In Copenhagen, the index of 20 leading stocks was on 3.8 per cent.
Rescue plan galvanizes stock exchanges
European Central Bank president Jean-Claude Trichet welcomed Friday the US bailout for tottering investment funds and other institutions, a spokeswoman said.
What had been announced so far was definitely welcome, she said, confirming an account of Trichet's remarks by the Market News wire service.
The US Treasury launched the rescue program with a 50-billion-dollar guarantee program for money-market funds.
The previous day, the US Federal Reserve had lent $180 billion to five central banks abroad to flood the globe with cash.
President Bush made the case for government intervention in a speech Friday
US President George W.Bush said on Friday that government intervention was necessary to solve the problems roiling the financial markets, calling it a "pivotal moment for America's economy."
"We must act now to protect our nation's economic health," Bush said, after plans were unveiled to address financial institutions' toxic mortgage debt.
"Given the precarious state of today's financial markets and their vital importance to the daily lives of the American people, government intervention is not only warranted, it is essential," he said at the White House.
"The rescue plan is being welcomed on stock exchanges," said Oliver Opgen-Rhein, a stock trader at HSBC Trinkaus & Burkhardt in Frankfurt.
Banks, which had not dared lend one another cash earlier this week, proved the fastest rising investments in Europe.
Critics warn of blows to US economy
However analysts warned Friday that the rescue plan was not all good: it risked a bad strain on the US federal budget.
Commerzbank economist Bernd Weidensteiner said the cost to the US taxpayer would be huge, noting that a similar rescue of the Japanese banking system in the 1990s had cost as much as 20 per cent of Japan's gross domestic product (GDP). He said a bailout costing $850 billion would cost 6 per cent of US GDP.
Folker Hellmeyer, chief economist of Bremer Landesbank in Germany, said Washington, which already had a fiscal deficit this year of $ 640 billion or 4 per cent of GDP, was skidding into "dangers you can't see the end of."
Although no German banks have failed or been forced to merge, the known exposure of German taxpayers to the crisis was approaching $1.2 billion Friday, with three huge government owned banks, KfW, Bayern LB and NRW Bank, admitting they had lost money.
All had placed funds with US investment bank Lehman Brothers, which declared insolvency on Monday.
Europe's biggest casualty of the week was British bank Halifax Bank of Scotland, which was taken over Thursday by Lloyds in a massive merger engineered by the British government.
Europe seeks tighter banking regulations
Global markets have been shaken by the financial earthquake on Wall Street this week.
The EU is now seeking to use the US economic meltdown, which it asserts was the result of a negligent attitude towards finance, as motivation to beef up its supervision of the financial sector in two key areas.
The EU is using the US financial storm to push for firmer financial oversight
"We need more coordinated action by supervisors than currently exists," said EU Economic and Monetary Affairs Commissioner Joaquin Almunia on Thursday, Sept 18, in Madrid. "We must move forward faster. We cannot wait until a financial institution operating in seven or 10 countries of the European Union has problems such as those of Lehman Brothers or Bear Sterns," he said.
The EU’s first goal is to tighten regulation of credit ratings agencies, which have come under fire for failing to alert investors about risks threatening borrowers’ solvency.
The EU commission is also plans to coordinate regulation of insurers and is set to announce a similar plan for the banking sector next month.
While continental European countries took the initiative to hold talks about tougher oversight of financial speculation, especially hedge funds, before the US financial crisis, European regulators have failed to keep tabs on the frequent cross-border consolidation in the banking industry sector in recent years. Banks are thus largely supervised along national lines.
That would mean that major European banks such as Deutsche Bank, Unicredit and BNParibas could potentially face various sets of regulations across Europe in times of trouble -- a burden feared by many officials.