Citigroup bailout breeds relief, caution
The rescue of US banking giant Citigroup and steps by governments to spur economic growth calmed fears of financial turmoil on Tuesday, tempered with caution over the wider scope of the crisis.
US president-elect Barack Obama warned that countries had to work together to stem the financial crisis which has spread economic gloom around the world, as he named his new team of economic advisors.
"The economic crisis we face is no longer just an American crisis, it is a global crisis -- and we will need to reach out to countries around the world to craft a global response," said Obama, who takes office on January 20.
The US government's move to guarantee hundreds of billions of dollars of Citigroup's debt sent stock prices soaring in Asia, Europe and the United States, though European shares slipped back in opening trade on Tuesday.
"The bailout eased risks to the entire financial system," said Hideaki Higashi, strategist at SMBC Friend Securities.
Stocks closed up 5.2 percent in Tokyo, 5.8 percent in Sydney, 1.4 percent in Seoul and 3.4 percent in Hong Kong.
On Monday the Dow Jones Industrial Average jumped 4.93 percent. Once the world's biggest banking group, Citigroup's shares had slumped last week on bankruptcy fears.
But analysts warned that there might be more bad news in the pipeline after the US government agreed to the rescue, shouldering Washington with potential losses of up to 306 billion dollars and injecting capital of 20 billion dollars, which follows a previous 25-billion-dollar infusion.
"Markets welcomed the bailout with a sigh of relief," said Hachijuni Bank strategist Sho Komamura. "But uncertainty remains over what will happen next as no-one had thought that Citigroup would need such a bailout."
Citigroup's shares had slumped last week over fears it could follow other banks into the financial void, but surged when trading opened on Monday.
The bailout plan sparked a frenzy on the markets, with Wall Street and European stock markets soaring as investors cheered the news.
In Britain, finance minister Alistair Darling, who forecast a sharp economic contraction in 2009, launched a tax and spending plan worth 20 billion pounds (30 billion dollars), sparking a 9.84 percent leap in the London stock market.
Europe's other two main stock markets, Paris and Frankfurt, each soared by more than 10 percent on Monday, before re-opening on Tuesday with declines of less than one percent. London was down 0.5 percent at the open on Tuesday.
Obama confirmed the New York Federal Reserve president and former Treasury official Timothy Geithner as his nominee for Treasury secretary, and the former Treasury boss Larry Summers as his top economic adviser in the White House.
The president-elect may unveil more details of a proposed stimulus package at a press conference on Tuesday, with Democrats vowing to draw it up as soon as possible.
The package should be approved "right now," Obama said, adding it should be the first order of business for the new Congress in January.
"We have a consensus, which is rare, between conservative economists and liberal economists, that we need a big stimulus package that will jolt the economy back into shape."
Obama has announced a plan to create 2.5 million jobs through a spending spree on national infrastructure.
Outgoing US President George W. Bush again pledged that his administration was ready to take all necessary measures to shore up the struggling US economy.
"This is a tough situation for America. We'll recover from it. The first step to recovery is to safeguard our financial system," Bush told reporters after late night talks with Treasury Secretary Henry Paulson.