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World Financial Crisis

Markets rally on interest-rate cut

Article published on the 2008-10-09 Latest update 2008-10-09 14:27 TU

The Jakarta stock exchange Thursday(Photo: Reuters)

The Jakarta stock exchange Thursday
(Photo: Reuters)

Asian and European stockmarkets appeared to bounce back following the news of a co-ordinated cut in interest rates on Wednesday by central banks including the US Federal Reserve and the European Central Bank.

London's FTSE 100 index of leading shares was up 2.12 per cent. Paris's Cac-40 and Franfurt's Dax 30 rallied 2.14 per cent and 1.37 per cent respectively.

In Asia, share prices in Hong Kong and South Korea also rose while prices in China closed down slightly at 0.84 per cent. Russia's two main stockmarkets saw the biggest gains up more than 11 per cent, recovering sharp losses from the day before.

In the US the Dow Jones Industrial Average jumped 1.46 per cent in early trading.

Seven central banks have cut rates by half a percentage point as one of a series of measures aimed at stemming the global financial crisis.  

Other moves included the nationalisation by the Icelandic government of another of the country's banks, Kaupthing, is Iceland's biggest bank. Earlier in the week, the government nationalised two other major banks, Landsbanki and Glitnir.

The European Central Bank said today it will pump 100 billion dollars back into money markets in an attempt to start key funds flowing through the financial pipeline. In a similar move, the Bank of Japan also poured 40 billion dollars into the markets, the largest one-day injection since the crisis began.

In Mexico, President Felipe Calderon has drawn up a four-billion-dollar crisis package aimed at bolstering the country's currency, the peso.

British Prime Minister Gordon Brown is today urging his European Union counterparts to emulate his bank rescue plan, revealed yesterday.

The British government announced a 639 billion euro rescue-package, involving the part-nationalisation of several of Britains main banks, and a guarantee of inter-bank lending.

Brown has written to his fellow EU leaders suggesting that if such a plan were implemented in a co- ordinated way, it could unblock frozen credit markets.

But Edmund Shing, a strategist at BNP Paribas in Paris doesn't see Brown's proposal as helping the current situation.

"The financial crisis is different in each Euro country. Although the source is the same, the transmission of the problem from the US to Euro economies is slightly different in each case. French banks are in better shape than average and German banks again do not have the same level of mortgage market crisis." he told RFI.

Explainer: Edmund Shing, BNP Paribas

09/10/2008 by Angela Diffley

Meanwhile, the International Monetary Fund has warned that many of the world's advanced economies are moving towards, or are already in, recession.

In its latest report published on Wednesday, the organisation described the current crisis as "the most dangerous financial shock in mature financial markets since the 1930s".

IMF chief economist Olivier Blanchard hailed the interest rate cut by central banks as "a step in the right direction" but added that more would be needed.