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WASHINGTON: Reports that the US government is preparing the creation of a new entity to rescue troubled financial firms lifted Wall Street Thursday and raised hopes for an end to the credit crisis.
US President George W. Bush huddled with the head of the Federal Reserve, Ben Bernanke, and his senior economic advisors to discuss "the serious conditions in our financial markets," White House spokesman Tony Fratto said.
Fratto refused to comment on the substance of Bush's 45-minute afternoon meeting with senior economic officials, including Treasury Secretary Henry Paulson; Christopher Cox, the chairman of the Securities and Exchange Commission (SEC); and Edward Lazear, head of the president's Council of Economic Advisers.
Treasury officials and members of Congress will discuss the financial turmoil in the evening, the White House later announced.
Central banks pumped more than US$300 billion into the roiling global banking system in an attempt to soothe financial markets whipsawed by worries about troubled banks.
Earlier, Bush vowed that his administration would meet the challenges of the financial crisis.
"As our recent actions demonstrate, my administration is focused on meeting these challenges," the US president said.
In another wrenching day in the worst Wall Street crisis since the Great Depression, British Prime Minister Gordon Brown insisted the priority must be to "ensure the stability of the (financial) system."
British authorities oversaw the takeover of Halifax Bank of Scotland by Lloyds TSB in an all-share deal worth US$21 billion.
US stocks gyrated throughout the session until reports of talks on creating a new US government entity to rescue embattled financial firms helped fuel a massive late-session rally.
The Dow soared 410.03 points (3.86 per cent) to close at 11,019.69 after a CNBC report said that Paulson was mulling the creation of a new agency similar to the Resolution Trust Corp. used to bail out troubled savings and loans in the 1980s.
Analysts at Briefing.com said the rally gained momentum after the CNBC report that "the government may be planning to solve the current financial turmoil using a method similar to the 1980s savings and loan crisis."
A move by British market regulators to ban short-selling - a technique that profits from falling share prices - lifted hopes that other markets may follow.
In the US, new rules aimed at curbing speculative "naked short" sales that aim to profit from falling share prices took effect as a probe was launched into market manipulation.
New York state attorney general Andrew Cuomo announced a probe into illegal short-selling practices that may have hurt finance firms including Lehman Brothers and Morgan Stanley.
Cuomo said that short-selling itself is legal but that "what is illegal is if you are spreading false information, rumours, and you join a conspiracy to purposely drive down the price of a stock, and you are profiting from the decline," he said in an interview with CNN.
Cuomo said the manipulation of the price of a stock with false information is securities fraud.
"Companies like Lehman, companies like Morgan Stanley, companies like Goldman Sachs who are seeing the rapid (share) declines, we have complaints that there are episodes of illegal short-selling, and that is what we are investigating."
Before the US equities markets opened, the US Federal Reserve led the charge to relieve "elevated pressures" in global markets by injecting US$180 billion into its currency swap line, and promising to do more.
The Fed was joined by the European Central Bank and the British, Canadian, Japanese and Swiss central banks in offering to swap currencies for dollars, taking the total liquidity to some US$300 billion.
The US Treasury announced plans Thursday to raise US$100 billion in a new issuance of debt to help support the Fed's actions.
Major European stock indexes closed mostly lower in volatile trade. In London, the FTSE 100 index lost 0.66 per cent and in Paris, the CAC 40 shed 1.06 per cent. The DAX in Frankfurt edged up 0.04 per cent.
"The fears remain," said Yves Marcais of Global Equities in Paris. "After the failure of Lehman Brothers, (investors) remain fearful of the risk of wider systemic (problems)."
Russian stock markets were closed for a third day after the bourse suffered its worst fall since the 1998 financial crisis on Tuesday, with the authorities saying they will re-open on Friday.
"There is no more important task for Russian authorities than supporting the financial system," Russian President Dmitry Medvedev insisted.
- AFP/yb
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