Banks help push world markets higher

[February 25, 2009]  LONDON (AP) -- World stock markets rose sharply Wednesday after Federal Reserve chairman Ben Bernanke said the U.S. government had no plan to fully nationalize any of the country's distressed banks.

In testimony to the Senate Banking Committee, Bernanke said formally nationalizing the banks to ensure their viability "just isn't necessary." Over recent days, the prospect of nationalization has weighed heavily on markets around the world because of fears it would dilute share prices and turn over major decision-making to government regulators.

Europe's three indexes, for example, had posted three consecutive days of losses amid fears about the financial sector.

"Equity holders in banks took solace from Bernanke's apparent preference for a public-private partnership solution to the banking crisis, rather than outright nationalization," said Daragh Maher, an analyst at Calyon Credit Agricole.

The FTSE 100 index of leading British shares was up 50.94 points, or 1.3 percent, at 3,867.38, while Germany's DAX was 66.25 points, or 1.7 percent, to 3,962. The CAC-40 in France was 48.16 points, or 1.8 percent, higher at 2,756.21.

Financial stocks led the march higher in Europe, with Deutsche Bank AG up over 4 percent, Barclays PLC 6 percent higher and BNP Paribas SA 5 percent firmer.

Earlier in Asia, the Nikkei 225 stock average jumped 192.66 points, or 2.7 percent, to 7,461.22, while the Hang Seng index in Hong Kong rose 1.6 percent to 13,005.08 even though the government predicted the local economy would shrink throughout 2009.

The gains in Europe and Asia were modest compared with the U.S. markets on Tuesday -- when the main indexes recovered strongly from near 12-year lows to rise more than 3 percent.

But Wall Street futures were indicating little action at the open Wednesday. Dow futures were unchanged at 7,304 points, while the broader Standard & Poor's 500 futures were up a tad at 769.

Though there was some short-term relief that full nationalization of the U.S. banks would not be necessary, the markets remain worried about how long the recession in the world's largest economy will last after Bernanke said growth in 2009 may not materialize if the credit and financial markets do not start operating more normally again.

"His pessimistic outlook for the U.S. economy was no source for comfort and all but dashed any hope that a speedy recovery was still policymakers' base scenario," said Geoffrey Yu, an analyst at UBS.

Markets will be awaiting details of what the Obama administration will be doing with Citigroup Inc. -- widely considered the most vulnerable U.S. bank -- now that nationalization is off the agenda. The current market expectation is that the U.S. government will swap its preference shares for 40 percent worth of ordinary shares in Citigroup.

Meanwhile, the dataflow around the world continues to be grim. Japan, for example, earlier posted a record trade deficit in January as global demand for its export-rich products collapsed.

Elsewhere in Asia, South Korea's Kospi was up 0.3 percent at 1,067.08, while Shanghai's benchmark added 0.3 percent, India's stock measure advanced 0.7 percent and Taiwan's main index was 1.4 percent higher.

In currencies, the dollar rose another 0.2 percent to 96.93 yen while the euro was unchanged at $1.2837.

Meanwhile, oil prices pushed back above the $40 a barrel market with light, sweet crude for April delivery up 67 cents at $40.63 on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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