European markets steady as investors eye US rescue plan

European stock markets steadied on Monday, after earlier gains in Asia, as investors hoped that the massive US rescue plan to relieve the financial system of toxic debt would end the global crisis.

Frankfurt, London and Paris held steady after dramatic fluctuations last week that culminated in the emergence of a costly US initiative to bail out the distressed financial sector.

The US Congress was due to consider an unprecedented 700-billion-dollar rescue plan to buy bad mortgage-related assets from financial institutions, and draw a line under last week's markets chaos that saw the demise of US investment bank Lehman Brothers and sale of peer Merrill Lynch.

"We must hope that Congress unites behind the US Treasury plan and that by the end of this week financial markets can justify a sigh of relief," said BGC Partners analyst Howard Wheeldon in London.

"Clearly these moves will come at a cost that will need to be paid for over many years ahead."

At the same time, the US Federal Reserve has agreed to allow investment banks Goldman Sachs and Morgan Stanley to become bank holding companies, giving them easier access to credit and help them survive the current crisis.

On Monday, London's FTSE 100 index of leading shares eased 0.06 percent, the Paris CAC 40 firmed 0.15 percent and Frankfurt's DAX 30 was unchanged.

Asian share prices rallied on the back of the US rescue plan, with some markets also getting a sharp lift from domestic regulatory measures, but investors remained uncertain about the precise details of the US initiative.

The market focus will switch across the Atlantic when Wall Street reopens at 1330 GMT.

"The Fed's bail-out plan continues to take shape although the big issue here is what is a good deal for the banks will arguably be a bad one for taxpayers," said CMC Markets dealer Matt Buckland.

He added: "Just how sustainable the rally in equity markets will be as a result remains to be seen as this stands to heap further economic woes on the US market, especially consumers."

In the foreign exchange market, the dollar slipped against the euro and yen as worries grew that Washington's rescue plan to take over Wall Street's bad debt would further saddle US finances, analysts said.

Back in London, the pan-European alternative trading platform Turquoise was officially launched.

Turquoise, created by nine large international banks, including BNP Paribas, Deutsche Bank and Goldman Sachs, was formed to provide competition with traditional European trading exchanges.

In Asia, Australian and Chinese markets both benefitted greatly from domestic measures, on top of Friday's Wall Street rally.

Australian shares closed up 4.5 percent after the corporate regulator banned all forms of short selling in a bid to curb volatility.

Australia's restrictions go further than those announced in the markets in the US and Britain, which cover only financial stocks.

Short-selling occurs when investors sell borrowed shares in the hope of profiting later from an anticipated fall in prices -- often contributing to the price fall.

French stock market authorities meanwhile said they were also tightening their rules on short-selling.

The British and French markets had recorded their largest-ever daily gains on Friday, winning 8.84 percent and 9.27 percent respectively. Over the whole of last week, marked by wildly volatile trading, all three main European stock markets finished in negative territory.

"After such a strong run on Friday the usual argument would be to wary of profit taking but with the markets having come off so far in the days before this, any downside pressures driven by sentiment could be limited," added Buckland.

Elsewhere on Monday, Japanese shares closed up 1.42 percent as markets digested the plan to mop up Wall Street's billions of dollars of bad debt, dealers said. Asia's largest bourse was cautious ahead of a national holiday in Japan on Tuesday.

China was another market to benefit from domestic regulatory moves, as the securities regulator announced plans for further stimulus measures to boost the stock market.

The key index closed up 7.77 percent after the securities regulator proposed relaxing rules on share buy-backs.

Hong Kong shares prices rallied 1.6 percent, supported by a strong Shanghai bourse after Beijing introduced more market-boosting measures.