| By Goh Eng Yeow, Markets Correspondent | ||
 |  | PHOTO: ASSOCIATED PRESS |
ONE of the biggest one-day rallies in stock market history rolled across global bourses yesterday as investors bet on a US$500 billion (S$717 billion) United States plan to fix the credit crunch crisis.
The plan, dubbed the largest bailout ever, involves buying toxic bank assets in the hope of freeing up credit markets. It triggered an astonishing share price rebound that left old market hands shaking their heads in disbelief.
Singapore's benchmark Straits Times Index staged its second-biggest one-day point gain in history, closing 139.86 higher at 2,559.07 after a 5.8 per cent surge.
Hong Kong trumped that easily, up 9.61 per cent, while Shanghai rose 9.46 per cent. London, Paris and Madrid were all up more than 8 per cent in late trading while Wall Street opened 430 points up.
Things turned farcical in Russia, where the market soared over 20 per cent, forcing the authorities to halt trading. When it resumed hours later, the index quickly rose 30 per cent. Trading was halted on Wednesday when shares fell too fast.
Financial stocks, recently bloodied by frightening price plunges, staged spectacular comebacks that also defied belief.
At one point in London, Lloyds TSB was up 65 per cent. Australia's Macquarie closed 37 per cent up. In Hong Kong, ICBC, Bank of China and China Construction Bank all rose by 16 per cent or more. Financial stocks in other markets, including Singapore, also recorded stunning rises.
'Blue chips that went begging for buyers a few days ago are now being snapped up,' said local remisier Thomas Lee.
The drivers came from three directions. In London, Sydney and New York, regulators have imposed wide-ranging bans on short-sellers, blamed for aggravating the global market meltdown. They sell shares they do not actually own, hoping to cash in on falling prices.
The US government also boosted confidence with a plan to protect investors with a payment guarantee on money market funds. But more crucial were US moves to create a US$500 billion special vehicle - dubbed a lifeboat by one analyst - to soak up the toxic assets that have been poisoning the financial system.
'Almost the entire rally is based on hopes that the US will take decisive action,' Mr Ajay Kapur, the chief global strategist at South Korean bank Mirae Asset, told the New York Times.
The rally in Asia was primed to go before the opening bell, given the 410-point overnight surge on Wall Street triggered by talk of the US plan. Traders were confident stocks would open sharply higher - as they did when news came through that the plan looked like a done deal.
Under the plan, an entity loosely based on the Resolution Trust used to clean up a mortgage mess in the 1980s will be formed to buy distressed assets from banks. Many traders see this as a more comprehensive way to end the crisis than the ad hoc approach so far. But some local observers are more cautious. 'We are closer to the bottom, but not quite there yet,' Kim Eng Research said yesterday.
A 'significant' number of tax dollars will be used to bail out the struggling US financial system, US President George W. Bush said yesterday, but he expects that they will be paid back.
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