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LONDON - World stock markets staged a turnaround on Friday, with Tokyo closing up nearly three per cent and European indices back in the black despite a steady flow of dismal economic news.
Dealers said stocks appeared to have been oversold during several days of heavy falls, creating room for a rebound ahead of the weekend.
In early European trade, London was up 1.08 per cent, Frankfurt gained 1.26 per cent and Paris climbed 1.24 per cent.
Earlier Friday, Tokyo ended up 2.7 per cent, Hong Kong rallied 2.9 per cent, Seoul surged 5.8 per cent and Sydney gained 1.9.
"Nobody has seen the market like this before. The market can do funny things though, and when it finally does turn around it is probably going to rally hard," said CMC Markets trader James Foulsham.
Investors took heart from a report in the Wall Street Journal that Citigroup executives are considering selling all or parts of the US banking giant in a massive restructuring effort, dealers said.
The rebound came despite an unrelenting torrent of grim news on the economy, which one analyst described as "one car crash after another" for markets.
"Whether through panic, speculation, fear or the forced unwinding of positions, we are witnessing mass selling on every level," said GFT derivatives head Martin Slaney.
"The risk of global economic recession is deepening by the day. The prospect of The Great Depression Two is a genuine one and is plain scaring investors."
Investors on Thursday were unnerved by news that Democrats in Congress had put off a vote on a bailout for crisis-hit US automakers until at least December, and ordered industry chiefs to come up with a new restructuring plan.
"The delayed action on a US bailout deal for the Big Three automakers is significant for markets," said Seiichi Suzuki, a strategist at Tokai Tokyo Securities.
"A bailout deal for the auto industry may help it to survive a bit longer but it would not be a cure-all remedy."
Democrats said the chief executives of the Big Three, criticised for flying to Washington on luxury corporate jets to plead for financial rescue, had not convinced them they could restructure their reeling companies.
"Until they show the plan, we cannot show them the money," House speaker Nancy Pelosi told reporters.
The decision to delay a possible multi-billion dollar rescue for the crippled industry rattled Wall Street, where the Dow Jones Industrial Average plunged 5.56 per cent overnight. Weekly US jobless claims shot up to a 16-year high, raising fears of a deep recession.
Investors are worried about the hazy outlook for further steps to tackle the worst financial crisis in decades because President-elect Barack Obama will not take office until late January.
"We are at a very difficult time for markets when the US administration is shifting," said Shinichi Ichikawa, chief equity strategist in Tokyo for Credit Suisse.
"We cannot expect at this time that either the outgoing president or the president-elect will come up with a policy that shows his strong intention to improve the economy fundamentally."
The markets showed little reaction to the Japanese central bank's decision to leave its key interest rate unchanged at 0.3 per cent as expected.
Finance Minister Shoichi Nakagawa said Japan was ready to take action if necessary to tackle wild swings in its financial markets.
"Whether it is the stock market or foreign exchange, sudden and extreme changes are not welcomed," Nakagawa told a press conference. "If we see such cases, we must take appropriate and necessary actions."
Singapore announced a 1.5-billion-US-dollar package to help its businesses gain access to credit amid a recession in the city-state and a global financial crisis.
- AFP/ir
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