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World stocks higher 2nd day running
Hong Kong Markets X 4953325
An investor reacts as she watched display showing stock prices at a brokerage firm in Hong Kong Tuesday, Oct. 14, 2008. Hong Kong's key index gained 4.39 percents or 715.67 points to 17027.83 to close at the midday after Wall Street staged a dramatic comeback from its worst week ever on optimism that government rescue efforts will heal the crippled global financial system. - photo by Associated Press
    LONDON — European stock markets enjoyed their second straight day of solid gains Tuesday following a record rise in Japan, while Wall Street forged higher on the U.S. government’s plan to pump $250 billion into banks and shore up the country’s financial system.
    Though markets welcomed the U.S. government’s plan to pump $250 billion into banks, pushing the Dow Jones index on Wall Street up 400 points after the open, investors decided to lock in some profits following Monday’s sharp rises.
    ‘‘This is a natural market in play after such a momentous rise yesterday,’’ said Howard Wheeldon, senior strategist at BGC Partners.
    The Dow Jones index of leading U.S. shares was 56.39 points, or 0.60 percent, higher at 9,444.00, having opened nearly 400 points higher. At one stage, the selling pressure pushed the Dow into the red.
    In London, the FTSE 100 index of leading shares closed up 137.31 points, or 3.2 percent, at 4,394.21 despite news that inflation in Britain is running at a 16-year high. Germany’s DAX was up 136.74, or 2.7 percent, at 5,199.19 even though a group of leading German economic think tanks said Tuesday that Europe’s largest economy is on the ‘‘brink of a recession.’’
    The CAC-40 in France was 97.02 points, or 2.8 percent, stronger at 3,628.52.
    Wall Street’s retreat from early highs came in the wake of Monday’s record one-day 936-point jump and the strongest ever daily performance on Japan’s benchmark Nikkei 225 index, which surged 1,171.14 points, or 14.15 percent, to close at 9,447.57. Tokyo financial markets were playing catch-up because they were closed Monday for a holiday.
    The resurgence in the markets follows unprecedented government efforts to bring an end to the financial crisis that has threatened the outlook for the whole global economy.
    So far, government actions appear at the least to be boosting confidence in the financial markets.
    The U.S. became the latest to announce plans buy stakes in its banks.
    President George W. Bush unveiled the $250 billion plan to buy stakes in nine banks and argued that the drastic steps would help stability return to the U.S. banking sector. ‘‘This is an essential short-term measure to ensure the viability of America’s banking system,’’ Bush said.
    The U.S. package comes a day after European governments, unveiled plans to take stakes in their banks under a package of guarantees and other emergency measures worth some euro1.7 trillion.
    The long-term key to whether the rescue packages work is whether the flurry of activity can actually break the logjam in credit markets and the early indications are that there has been some easing in rates and spreads.
    The interbank lending rate for three-month euro loans, known as the Euro Interbank Offered Rate, or Euribor, fell 0.08 percentage points to 5.24 percent from 5.32 percent the day before. Rates had fallen on Monday as well, but by a more modest 0.06 percentage points.
    The equivalent dollar rate fell 0.12 percent to 4.64 percent, while pound rates are 0.02 percent down at 6.25 percent.
    Though the rates are falling, the differential between the rate at which banks lend to each other and official central bank lending rates remain high, signalling a strong degree of mistrust still exists. In the U.S. the base central bank rate is 1.5 percent, in the euro area it is 3.75 percent and 4.50 percent in Britain.
    Even if lending rates between banks drop, as most now expect, there’s nothing to stop the sharp imminent downturn in the world economy.
    Paul Ashworth, international economist at Capital Economics, said the U.S. plan is ‘‘fantastic news’’ but can’t ‘‘solve the banking crisis at a stroke’’ nor prevent the economy from sliding into a deep and prolonged recession.
    ‘‘Nevertheless, at this stage we have to be thankful for small mercies; it does at least reduce the risk of a full-blown depression,’’ said Ashworth.
    Earlier, Asian governments took more steps to fortify their own financial systems, helping stock markets across the region to rally. Authorities relaxed regulations on companies buying up their own shares, a change that will help prevent takeovers and allow companies to prevent a nose-dive in their own issues.
    Japan also promised to continue to protect people’s insurance policies and savings accounts, and said it will consider capital injection into medium-size and small Japanese financial institutions.
    And in Australia, the government announced a plan to inject 10.4 billion Australian dollars ($7.4 billion) to strengthen the country’s economy, helping send the S&P/ASX200 index 3.7 percent higher. Hong Kong promised to guarantee all bank deposits until 2010.
    Hong Kong’s key index ended up 3.2 percent, while South Korea’s market jumped over 6 percent. The Philippine market surged more than 7 percent and Indonesia’s market — shut half of last week due to dramatic declines — was up more than 6 percent.
    Only China’s market fell — sliding 2.7 percent.
    Russia’s stock markets joined the surge Tuesday, with the RTS index ending up 9.9 percent higher while the MICEX index closed 13.3 percent higher.
    Latin American stocks continued to climb too, with Brazil’s Ibovespa stock index up 1 percent in morning trading. The index saw its biggest one-day gain in a decade in the previous session.
    Oil continued to rise, with light sweet crude for November delivery gaining $0.76 to $81.95 a barrel on the New York Mercantile Exchange.
    In currencies, the dollar was lower on the day at 102.19 yen, while the euro was steady at $1.3665.
    ———
    AP Business Writer Jeremiah Marquez in Hong Kong and AP Writer Tomoko A. Hosaka from Tokyo contributed to this report.