Asian Markets Rally after European Bank Decision
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Tuesday, September 21, 2021

Asian Markets Rally after European Bank Decision

By THE ASSOCIATED PRESS Friday, September 16, 2011

A woman walks past an electronic stock board in front of a securities firm in Tokyo, Japan on Sept. 16. (Photo: AP)

TOKYO — A decision by European central banks to support the region's financial system helped calm Asian markets, setting off a rally in early Friday trading.

The focus is now shifting to talks in Poland between US Treasury Secretary Timothy Geithner and his European counterparts, which run through Saturday, about coordinating efforts to prevent Europe's debt crisis from derailing a global recovery.

Japan's Nikkei 225 index rose 1.7 percent to 8,819.69 while South Korea's Kospi advanced 3.5 percent to 1,835.31. Hong Kong's Hang Seng gained 2.1 percent to 19,585.10.

The news also set off a rally in US stocks overnight, with the Dow Jones industrial average rose 1.7 percent to close at 11,433.18. The Standard & Poor's 500 index climbed 1.7 percent to 1,209.11.

Worries about European banks' borrowing problems, a key element in the region's debt crisis, have been hanging over global markets in recent weeks, especially about the cash-strapped governments in Greece and Italy.

But the European Central Bank, the US Federal Reserve and three other central banks said Thursday they would provide European banks with unlimited dollar loans.

In currencies, the dollar strengthened to 76.78 yen from 76.64 Japanese late in New York on Thursday. The euro fell to $1.3866 from $1.3889.

Benchmark oil for October delivery was up 1 cent at $89.41 per barrel in electronic trading on the New York Mercantile Exchange. The contract added 49 cents to finish Thursday at $89.40 per barrel.

In London, Brent crude for October delivery was up 40 cents at $112.70 on the ICE Futures exchange.

Dollar Access No Long-Term Fix for Europe's Crisis

LONDON — Five central banks acted Thursday to shore up confidence in Europe's financial system by giving its banks far greater access to US dollars.

The move buys time for banks that hold large amounts of debt issued by Greece and other financially troubled European countries. Some of these banks have had trouble paying for daily operations because other banks have refused to lend to them any more.

Under Thursday's action, the banks can borrow unlimited dollars for three months, up from the current one-week limit.

The European Central Bank said it will coordinate with the US Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to offer the loans through the end of this year. Their move to supply more dollars is similar to steps taken during the 2008 financial crisis and again in May 2010.

The news reassured stock markets, which have been battered by rumors that banks' losses on their loans to Greece might sink them. Stock indexes in France and Germany each surged 3.1 percent. The euro rose against other currencies. US indexes rose by more than 1 percent.

Concern about their access to dollars has been a key reason why European banking stocks have been beaten down. Investors have been particularly worried about big French banks Societe Generale and BNP Paribas. Thursday's news sent Societe Generale's stock soaring 8 percent and BNP Paribas' 13 percent.

Analysts cautioned that the expanded credit line for dollars isn't a long-term solution to Europe's debt crisis. Greece still appears likely to default on its debts. If it did, some banks could topple. Panic might spread among global investors.

The move will likely ward off a panic for the next few months, said Mark McCormick, currency strategist at Brown Brothers Harriman

"But it's not going to solve the problem, which is too much debt," McCormick said.

Still, he said the central banks acted wisely to address the problem now, before pressure on banks intensifies further.

When a bank is rumored to be in danger of suffering large losses, other banks will stop lending to it for fear of not getting their money back. That's the scenario that led to the global credit crunch in 2008. Banks will then stop lending to businesses. The funding squeeze stifles growth and hurts the global economy.

Indicators of banking stress are at their worst points in three years, McCormick said. Still, they remain better than before Lehman Brothers failed exactly three years ago—on Sept. 15, 2008—setting off a worldwide credit crisis.

The coordinated effort is intended to prevent Europe's debt crisis from derailing the global economy's rebound from recession.

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