Emergency rate cuts bolster world stock markets

Global stock markets surged back into positive territory on Wednesday after major central banks slashed interest rates to tackle a worsening financial crisis. Although the move came after the close of another calamitous day of losses in the Far East, heavy downturns on European markets were rapidly wiped out although analysts said it was too early to breathe a sigh of relief. "We are not out of the woods yet," said City Index market strategist Joshua Raymond. "We will have to see whether this has any long lasting effect on confidence." London was up 0.62 percent after the Bank of England slashed interest rates. It had earlier plunged seven percent after Britain's government had announced a 50-billion-pound part-nationalisation of the country's main banks as part of an emergency bailout package worth a total of 500 billion pounds. The US Federal Reserve, European Central Bank and Bank of England, along with several other national central banks, made half-point cuts to their key lending rates in emergency moves Wednesday. Following the rate reductions, Paris advanced 0.20 percent, wiping out heavy losses, though Frankfurt remained in the red, down by 0.99 percent in afternoon deals. Wall Street was to reopen at 1330 GMT. The stock market in Saudi Arabia, the largest in the Middle East, rebounded strongly just before the close of trade on Wednesday, eradicating most of the losses incurred early in the day. The Bank of Japan said it supported coordinated rate cuts but was not participating as its benchmark rate was already low. The British government said it would use 50 billion pounds (64 billion euros, 87 billion dollars) of taxpayers' money to buy preferential shares in the banks, in a bid to prevent a collapse of the banking system. The three-part package also makes available 200 billion pounds in short-term loans and the government will issue 250 billion pounds to guarantee loans between banks. Britain's measures come after the United States last month announced its own 700-billion-dollar bailout of ailing Wall Street banks. In a dramatic day on fear-stricken markets in Asia, Tokyo plummeted 9.38 percent by the close, the biggest loss since October 1987 in the wake of the "Black Monday" crash in the United States. Japanese Prime Minister Taro Aso he was stupefied by the market's slide, adding he sensed "huge fears" in the public. Hong Kong ended down 8.2 percent at its lowest level in more than two years. The bloodbath forced some countries to take dramatic steps to try to stem the selling. Indonesia suspended trading on its market after stocks plunged more than 10 percent. Trading was later frozen on Russia's two main stock markets after plunges of more than 11 percent on opening. Banking shares were extremely volatile, switching from losses to massive gains and vice-versa. British bank HBOS soared 51 percent after tumbling 41.5 percent on Tuesday. Sydney closed down 5.0 percent on Wednesday, Seoul lost 5.81 percent and Shanghai shed 3.04 percent as the crisis sparked by a US housing slump continued to send shockwaves around the globe. Wall Street's Dow Jones Industrial Average sank more than 500 points or five percent on Tuesday to a five-year closing low. In foreign exchange trading Wednesday, the dollar slumped below 100 yen for the first time in six months as investors flocked to the Japanese currency as a haven. Oil prices sank close to one-year low points close to 80 dollars a barrel as plunging stock markets generated fresh fears of slowing economic growth and in turn weaker global demand for energy, traders said. "No one knows for certain now what they can rely on," said Hironobu Hagi, deputy general manager at capital market division of Shinsei Bank. "We're seeing panic selling. Once players see a sign of selling, everybody tries to jump on the bandwagon," he said. Global central banks meanwhile pumped billions of extra dollars into the financial system while the Hong Kong Monetary Authority said it would cut its key interest rate by 100 basis points from Thursday. The world's top finance chiefs were to meet in Washington on Friday. The US Federal Reserve said Tuesday that it would buy up short-term commercial paper or company debt in an effort to kick-start credit flows and fight off the liquidity crunch triggered by a wave of US mortgage defaults. But markets took little comfort from the latest measures. Wall Street's Dow Jones index sank 5.11 percent to a five-year closing low on Tuesday.