Global stock markets staged a historic rally on Monday as European governments pledged a total of €1,873bn ($2,546bn) to shore up their financial sector and the US prepared to unveil its own comprehensive rescue plan on Tuesday, reports the FT. In New York, the S&P 500, which fell 18.2% last week, rose 11.6%– the biggest daily gain since the Great Depression. The US was expected to announce it would commit $250bn, out of the $700bn rescue package agreed earlier this month, to a recapitalisation programme, provide a temporary sovereign guarantee for bank borrowing and expand depositor protection. About half the money would be invested in bigger US banks including Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, State Street, and Bank of New York Mellon – with the largest lenders receiving as much as $25bn. Merrill Lynch will also receive an investment, reports Bloomberg. The rest of the $250bn would go to as yet unspecified smaller financial institutions. Bankers said the Treasury offered to purchase a specific amount of three-year preferred stock in each bank on a take-it-or-leave-it basis, and had dropped its opposition to sovereign guarantees for funding as they spread across Europe, putting US banks at a competitive disadvantage. Under the US plan, the guarantees are likely to be provided by the Federal Deposit Insurance Corporation. The US shift makes it likely that Canada, and possibly Japan, will follow suit.

This entry was posted by Gwen Robinson on Tuesday, October 14th, 2008 at 5:38 and is filed under Capital markets. Edit this entry.