European banks lined up on Monday to tap state rescue packages to shore up their finances, part of measures to stem a global crisis that have begun to restore trust between institutions.
The rate banks charge each other for dollar loans fell, suggesting that confidence in dealing with other lenders was returning to the market. European shares rose by almost 3 percent on optimism the financial sector crisis might ease.
Banks were fearful of lending because they were not sure which groups were threatened by bad home loans, freezing lending not only between each other but also to businesses.
Merrill Lynch & Co's chief executive said he was confident measures taken in the United States, where the sub-prime mortgage crisis began, would succeed, although the economy could need years to recover.
"It is likely to take multiple years to repair the damage that has been done," John Thain said in Dubai.
"This is not going to get better in three to six months."
Governments have promised about $3.3 trillion — about equal to the economic output of Germany — to guarantee bank deposits and bank-to-bank lending, and in some cases have taken stakes in banks that are awash in the bad assets.
BAILOUTS
Germany's cabinet approved strict conditions for banks that make use of its 500 billion euro ($674 billion) rescue package, including limits on managers' salaries, bonuses and severance.
"The criteria for appropriate (remuneration) are based on responsibilities and personal performance, business conditions and the success and outlook of the company compared to others in its field," the provisions agreed by cabinet stated.
Bavaria's public sector bank, BayernLB , was ready to ask for funds, Bavaria's finance minister said. Commerzbank said it would take a close look at using the funds.
On Sunday, the Dutch government agreed a 10 billion euro cash injection into financial group ING, powering its shares higher by almost 23 percent.
ING said it had agreed to sell its Taiwan Life insurance unit to Fubon Financial for $600 million, increasing its capital in a deal analysts said would benefit shareholders.
"We are in a large financial storm, and the storm has been building in recent weeks. We wanted to make sure we had a buffer, a buffer large enough to carry us through the storm," ING Chief Financial Officer John Hele told CNBC television.
In Sweden, the government outlined a plan worth more than 1.5 trillion crowns ($271.5 billion) that would include credit guarantees and a bail-out fund.
"The government is proposing powerful measures to ease the effects on Swedish households and companies of the financial turbulence," said Financial Markets Minister Mats Odell.
LENDING
The rate at which banks lend dollars to each other fell on reports U.S. banks had started to lend rather than hoard cash, a sign central banks are gaining traction in their quest to free money markets.
Two-year dollar swap spreads fell to their lowest in a month, while euro and sterling interbank rates were also indicated lower in European trading on Monday.
"There's a perception that the credit squeeze could be beginning to abate thanks to measures from global authorities over the past couple of weeks," said Philip Shaw, chief economist at Investec.
But analysts said fears of recession could cap any long-term recovery in the markets.
In China, gross domestic product rose more slowly than expected in the third quarter, raising uncertainties about the world's main source of economic growth. China has produced a quarter of global growth in recent years.
China reported that its economy — the world's fourth-biggest — grew 9 percent in the third quarter from a year earlier, below forecasts of 9.7 percent, due to the crisis and a weak property sector.
Policymakers across the world have reported slower economic growth.
French Economy Minister Christine Lagarde said the forecasts for economic growth were fragile. "The forecasts that were made … clearly, they have been made fragile by the financial crisis which has hit the system," she told Europe 1 radio.
Bank of Japan Governor Masaaki Shirakawa also said growth in the world's second-biggest economy was likely to remain sluggish.
