Shares in financial stocks have soared, helping the US stock market post its biggest percentage gain in six years overnight, while European stocks rallied more than five per cent in early trade.
The rally follows news that US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend on a plan to deal with the illiquid assets that have choked the financial system.
These assets have shattered bank balance sheets, leading to the collapse of Lehman Brothers and the US government bailout of U.S. insurer AIG. Yesterday, major central banks acted to inject liquidity to relieve jammed-up money markets, and the Financial Regulator implemented a temporary ban on short selling in line with a similar move in the UK.
Europe's Dow Jones Stoxx 600 Index recovered from four days of losses, adding 5.6 per cent to 271.06 at 9.32am in London. Russia's RTS Index jumped 16 per cent after a two-day suspension and President Dmitry Medvedev's pledge of $20 billion to prop up the market.
Futures on the Standard & Poor's 500 Index climbed 2.8 per cent, and the MSCI Asia Pacific Index rebounded 4.8 per cent from a three-year low. China's CSI 300 Index surged by a record 9.3 per cent.
Japan's Nikkei share average rose 3.8 per cent today, rebounding from a three-year closing low hit the previous day, on hopes for a more comprehensive solution to the financial crisis that has roiled markets worldwide.
The benchmark Nikkei average added 431.56 points to end at 11,920.86, after booking its lowest close since June 2005 on Thursday. The broader Topix climbed 4.7 per cent to 1,149.12.
The day's rally in a broad range of stocks helped the market pare some of the losses logged in a tumultuous week in which AIG was bailed out, Lehman Brothers went bankrupt and Merrill Lynch was forced into partnership with Bank of America.
Despite a series of unsettling events, the Nikkei is down just 2.4 per cent for the week, though it has lost about 22 per cent so far this year.
The dollar also rose nearly two per cent against the yen today, boosted by news that the US government was considering a comprehensive plan to deal with the toxic bank assets at the heart of the financial market turmoil.
The yen tumbled to its weakest level in a week against the US currency, while higher-yielding currencies such as the Australian dollar rose as investors regained some confidence.
At 9.14am Irish Time, the dollar had gained 1.8 per cent against the yen to 107.42 yen, while the euro rose 1.3 per cent to 152.60 yen.
US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend on a plan to deal with the illiquid assets that have choked the financial system.