Governments across the world launched multi-billion dollar bailouts on Monday to shore up tottering global banks and Britain called for a new Bretton Woods agreement to reshape the world financial system. Stocks markets reacted positively to rescue packages from Britain, Germany, France, Italy and other European governments, Wall Street joining Europe and Asia to open up over 4 percent.
The slew of bank bailouts worth hundreds of billions of dollars were designed to stave off the world's worst financial crisis in nearly 80 years, accompanied by declining global economic growth and the threat of widespread recession.
"Only by global action can we fully restore the confidence that is needed and build the international financial order," said British Prime Minister Gordon Brown.
He called on world leaders to create a new "financial architecture" to reflect the global reach of economics and banking, in much the same way that the current international economic system was set up at a conference in Bretton Woods, New Hampshire, in 1944.
In the United States, focus was on Morgan Stanley, whose share price plunged 58 percent in the last week, after Japan's Mitsubishi UFJ Financial Group said on Monday it had invested $9 billion under revised terms.
The deal provided much-needed investment and dashed fears at least temporarily that Morgan Stanley would collapse. Britain said it would spend up to 37 billion pounds ($63.95 billion) buying into top UK banks, making the UK government the biggest shareholder in Royal Bank of Scotland and the merged Lloyds TSB/HBOS.
Germany's cabinet approved a rescue plan worth up to 500 billion euros ($679.3 billion) for its banks. The package provides 400 billion euros in bank guarantees and makes a further 100 billion euros of state funding available.
French President Nicholas Sarkozy announced the government would guarantee bank lending. France will use two entities to help banks with one offering 320 billion euros to guarantee bank lending, the other a 40 billion euro fund to take stakes in companies.
CNBC, meanwhile, reported that a comprehensive U.S. financial rescue plan, including interbank lending guarantees, could be announced as soon as Tuesday.
The Italian government said it would make more than 20 billion euros available to shore up banks and Spain pledged similar action, though it saw no need for it as yet.
Japanese Finance Minister Shoichi Nakagawa said his country would consider guaranteeing all bank deposits if necessary, news agency Jiji reported.
CRISIS MOVES
In tandem on Monday, European central banks said they would lend out as much U.S. dollar liquidity as commercial banks need in a further bid to tame money market tensions.
In a joint announcement with the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank said they would meet all bids from commercial banks at a fixed interest rate.
Australia and New Zealand earlier guaranteed all bank deposits and Indonesia upped its guarantee to 2 billion rupiah ($203,000) while India pledged more liquidity to help financial markets.
Qatar launched a $5.3 billion plan to purchase shares of its listed banks. Saudi Arabia cut its lending rate on Sunday to provide liquidity to its banks and the United Arab Emirates guaranteed bank deposits.
The moves followed a weekend of crisis talks in the United States and Europe in which governments pledged to support the financial system, which has moved to the brink of collapse as it suffers from both steep losses in the credit market and a lack of trust in lending that has frozen the flow of capital.
The need for bailouts has become particularly trenchant against a background of a global economic slowdown, with many countries facing recession.
The crisis has swept across financial markets, sending many stock markets into free fall. MSCI's main world stocks index, for example, lost a quarter of its value from the beginning of October until today.
But equity investors appeared to be comforted by the government bailouts on Monday. The Dow Jones industrial average climbed 4.5 percent in early trade, the pan-European FTSEurofirst was up 6.7 percent and Asian shares outside of Japan, which was closed for a holiday, gained around 7 percent.
"We are arguably now near the end point in terms of the extremely violent sell off in equities and widening in spreads, said Sean Maloney, a bond strategist at Nomura.
Money markets — the heart of the credit crisis — eased but remained tight. Three-month dollar Libor fell to 4.75250 percent from 4.81875 percent on Friday.
Banks deposited a record 155 billion euros overnight at the European Central Bank, rather than lend to each other.
Authorities have been trying to avoid a repeat of the decision to allow Lehman Brothers to go bust.
The Federal Reserve gave its approval on Sunday to the takeover of Wachovia Corp by Wells Fargo & Co.
