The United States will pump $250 billion into its banks on Tuesday, following similar measures in Europe, but data showed the threat of recession has not been banished even if a financial sector meltdown has.
The Treasury will unveil its plan at 8:30 a.m. EDT with about half the total likely to go to the top nine U.S. banks to get them lending to each other again, people familiar with the scheme said.
Federal Reserve Chairman Ben Bernanke said in an article in the Wall Street Journal that the measures constituted a broad attempt to end the crisis, which began with a U.S. housing market collapse and now threatens industry and jobs worldwide.
"These steps will allow us to restore more normal market functioning and encourage private capital to further support the reinvigoration of financial markets," he wrote.
The Treasury will buy stakes in Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley and Bank of New York Mellon Corp, said two sources speaking anonymously.
Media reports said State Street Corp and Merrill Lynch would also receive a capital injection.
Similar moves in Europe helped restore some confidence among investors on Monday.
"Day The Markets Breathed Again" ran the headline in Britain's Guardian newspaper above a photograph of the London City skyline, caught in a golden twilight.
London, Berlin and Paris offered direct capital injections for banks and to underwrite lending between banks that has all but frozen, choking off funds that ultimately drive private business and industry.
Germany approved a rescue plan worth up to 500 billion euros ($679 billion) and France put up a total of 360 billion euros.
Britain, which has led the way with a twin blueprint of bank equity stakes and money market support, had already pledged 250 billion pounds to guarantee lending between banks and stumped up 37 billion pounds to buy into its troubled financial giants.
Japan joined the global push, saying it could inject public funds into regional banks to make sure small firms can get cash while the Bank of Japan said it would hold an extraordinary meeting from 7:30 a.m. EDT to consider ways of improving its operations to keep financial markets stable.
Even the Gulf with its oil revenues is acting. The United Arab Emirates will pump 70 billion dirhams ($19 billion) of emergency funding into its banking sector.
RECESSION THREAT
Stock markets gave a thumbs up to government action. Japan's Nikkei surged more than 14 percent — the biggest one-day gain in its history — while European shares rose around 4 percent.
"Investors are peeping out of their bomb shelters," said Sean Callow, currency strategist at Westpac.
Many stock markets shed as much as 20 percent last week as panic gripped and experts said that while financial meltdown may have been averted, the threat of global recession had not.
German investor sentiment declined sharply this month, the heavyweight ZEW research institute survey showed, although many responses were given before Berlin's bank package was announced.
"The perspectives for the economic development in Germany have significantly deteriorated," the ZEW said in a statement.
British inflation, meanwhile, hit a 16-year high of 5.2 percent in September, although the Bank of England had anticipated the rise and the data are unlikely to stand in the way of further interest rate cuts as oil and food prices tumble.
Former Federal Reserve Chairman Paul Volcker said the world's biggest economy was already in recession while a slowing of Chinese money supply growth suggested its turbo-powered economy was slowing.
Trouble lurks in smaller economies too.
Officials from Iceland, driven close to collapse as frozen credit markets caused its banks to fail, are in Moscow for talks on an emergency loan that could be worth billions of euros.
And Ukraine will ask the International Monetary Fund for a funding program, according to a senior IMF official.
Some relief was evident in money markets although they were far from operating normally, indicated by the fact that some 600 banks hoovered up 310 billion euros at a European Central Bank auction, rather than go to each other for liquidity.
In London, interbank rates for overnight dollar deposits were indicated in a range between 1.5 and 3 percent, from around 2-4 percent a day earlier. But three-month dollar deposit rates failed to ease, holding in a range of 4.0-5.4 percent.
On Monday, the Fed, European Central Bank, Bank of England and the Swiss National Bank said they would lend commercial banks as much U.S. dollar liquidity as they needed.
The U.S. administration will also reveal on Tuesday its intentions to allow the Federal Deposit Insurance Corp — which guarantees bank accounts — to insure senior preferred debt issued by banks and thrifts for three years, one source said.
That move appeared aimed at unlocking credit markets, vital to business and to private borrowers.
The U.S. plan to buy stakes in banks marks a quick about-face for Washington policymakers, who until recent days had been focusing on an apparatus to soak up bad assets from banks via a $700 billion fund approved by Congress.
The New York Times said Citi, JPMorgan, Bank of America and Wells Fargo would receive investments of $25 billion each. Goldman Sachs and Morgan Stanley will get $10 billion each.
