In a dramatic end to a volatile week, shares on exchanges around the world moved sharply higher Friday as Washington moved to restore confidence in America's financial markets.
The Dow Jones industrial average closed up 368.75 points, or 3.4 percent, and the broader Standard & Poor's 500-stock index was up 4 percent. The rise Friday came on the heels of a 410-point rise in the Dow on Thursday.
The Dow shot up more than 400 points shortly after the start of trading on Friday as the markets took heart in Washington's move to buy distressed mortgage-backed securities that continue to drag down the financial sector.
"What the authorities have done is tackle the root of the cause of the lack of confidence," said Ian Gordon, an analyst at Exane BNP Paribas in London.
Although the Dow closed slightly lower for the week, it recovered 800 points in the last two days.
"Nobody knows how sustainable this is, but the immediate reaction just to the rumors about the steps yesterday showed that this has the potential of being the beginning of the end," Michael Holland, chairman of Holland & Company, said of the market rally.
In London the FTSE closed up 8.8 percent, while in Paris, the CAC 40 rose by 9.3 percent, its biggest jump in more than five years. The DAX gained 5.5 percent in Frankfurt.
Financial stocks were especially bolstered by the government's actions, which included moves to insure money market funds and curb short-selling of financial companies' shares. Citigroup's stock was up 18 percent, Bank of America gained 15 percent and JPMorgan Chase rose 12 percent. Shares of Morgan Stanley, which has been involved in talks about a possible merger, were up 22 percent.
"Markets tend to react in tandem and for the time being the momentum is positive," said Andrew Popper, chief investment officer at SG Hambros Bank in London. "The overall context is that the central banks and the U.S. government is very proactive and that is what the market wants and needs."
"It is hard to see whether it will bring back the confidence in the long term," Popper said. "We had so many false recovery beginnings already. One has to be prepared for some storms ahead. I don't think this is the turning point. We still have the restructuring of the entire industry ahead of us."
In the Treasury markets, rates and bond yields rose as traders unwound their safe-haven positions. The dollar rose against the yen, but fell slightly against the euro.
The spreads between Treasury yields and two-year interest-rate swaps narrowed on the news of the bailout plant. The rate on a two-year interest-rate swap, used by companies to hedge and investors to speculate on rate changes, narrowed 17 percent, the most since September 2003.
In Moscow, meanwhile, both of Russia's main stock exchanges, the Micex and RTS, halted trading twice Friday as the markets surged, Reuters reported. The Micex and RTS exchanges said the suspension was caused by technical limits on how fast stock prices can grow, the report said.
The Hang Seng index leaped 9.6 percent in Hong Kong, gaining 1,695.27, to close at 19,327.73 points. Another spectacular turnaround took place in Shanghai, where the composite index soared 9.46 percent to close at 2,075.09. Trading had slowed as many stocks increased by the daily limit of 10 percent soon after the stock market opened.
As the wave of buying swept across the Pacific, the Nikkei 225 index gained 3.8 percent in Tokyo. The All Ordinaries index climbed 3.9 percent in Australia, and the Kospi index increased 4.8 percent in Seoul.
Ajay Kapur, the chief global strategist at Mirae Asset, a large Korean investment bank, said that the surge in Asian stock prices was a response to discussions in Washington on the possible creation of a government-owned corporation that would buy distressed mortgages from banks and other financial institutions.
"Almost the entire rally is based on the hope that the U.S. authorities will take credible action," Kapur said.
But not everyone thought the rally could be sustained. "This is just a breather we're getting," said Jeffrey Davis, chief investment officer at Lee Munder Capital Group in Boston. "The rally will stop because we don't know what it all did to hedge funds and other institutions that maybe had to make decisions in stressed periods. The rally will subside and people will take the weekend to look at what damage it had."
"The best thing that can happen now is lots of cross-border transactions," Davis said. "If there is anxiety and legislation going on in Europe, though, that can really slow things down."
Across Europe, banking stocks leaped higher with Crédit Agricole up 16 percent, BNP Paribas gaining 10 percent, Anglo Irish up by a huge 61 percent and Bank of Ireland adding 52 percent. Deutsche Bank and Credit Suisse Group both climbed 15 percent while, in Australia, Macquarie Group, the country's biggest investment bank, gained 38 percent.
The continental European and Asia gains were mirrored in London after regulators in Britain followed their counterparts in the United States to propose new regulations Thursday on short-selling, the practice of betting on a fall in share prices.
At the close of trading, Barclays rose 29 percent, HSBC rose 15 percent and Royal Bank of Scotland Group gained 32 percent.
The increases across the globe reflected a calculation that action by the United States and other governments would stem the tide of losses that has roiled American financial institutions, forcing the authorities in the United States to rescue some, notably the big insurer American International Group, while allowing Lehman Brothers, a Wall Street stalwart, to fail.
Gordon at Exane BNP Paribas said the measures taken by the authorities had "very quickly" reversed losses. "What we've seen over the last two days was a significant technically driven collapse and that is being reversed very quickly. I think it should hold in that we now have a window through January and we probably won't have a repeat of the things we've seen lately. It's bringing the market back to normal and make things easier," he said.
But some experts took a more cautious view, questioning the limits of American financial power.
"This is a short-term reaction that is definitely positive but we are still waiting for the details of the rescue fund to come out over the weekend," said Thomas Romig, a fund manager at Cominvest Asset Management in Frankfurt.
"It's definitely a positive sign because we've seen some holes appearing in financial vehicles around the globe as a result of the Lehman bankruptcy but in the medium-term one needs to ask the question about how the United States is going to pay for all those rescues."
The official Xinhua news agency announced on Thursday evening that a government agency had begun buying shares in three of the country's biggest banks: the Industrial and Commercial Bank of China, the Bank of China and the China Construction Bank. The government also removed a tax of 0.1 percent on the purchase of shares.
"With the latest Chinese government measures to save the market, announced last night, mainland Chinese retail investors are finally convinced the government is stepping in the market to help," said Peter Lai, a director of the Hong Kong office of DBS Vickers Securities, a brokerage firm with headquarters in Singapore.
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