World stocks rally mostly stalls on doubts over US rescue plan

A world equities rally mostly stalled on Monday as investors questioned whether the much-vaunted US rescue plan would resolve a global crisis that has shaken the financial world to its core.

Wall Street fell at the open while European markets were mixed in late afternoon trade, as many participants turned cautious about a massive 700-billion-dollar government plan to bail out the banking industry and prop up confidence in markets.

Asian share prices had rallied Monday on the back of the US rescue, though some markets were greatly lifted by domestic regulatory measures, traders said.

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

Finance ministers and central bankers from the Group of Seven leading advanced nations were also to discuss the US financial crisis.

"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."

On the heels of a powerful relief rally last week, the Dow Jones Industrial Average dropped 0.78 percent to 11,299.80 points.

Prior to Wall Street's reopening, Japanese megabank Mitsubishi UFJ Financial Group Inc. said it would buy up to 20 percent of US investment bank Morgan Stanley in a deal worth up to 8.5 billion dollars.

Top Japanese brokerage group Nomura Holdings meanwhile confirmed that it had won a deal to buy all Asian operations of Lehman Brothers.

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

Global markets were generally steady after last week's roller-coaster, soothed by plans of the huge bailout proposed by President George W. Bush's administration.

But some analysts said details of the plan made it more complex than anticipated and that prospects for passage were unclear.

"Although the plan seems likely to gain final approval, worries remain that the proposal by the US Treasury Department could face delays and undergo changes as it makes its way through Congress," analysts at Charles Schwab & Co. said.

"Worries about the cost of the rescue package are weighing on Treasuries and world markets are mixed."

In late afternoon deals, London's FTSE 100 index of leading shares eased 0.01 percent while the CAC 40 in Paris fell 0.40 percent. The Frankfurt's DAX 30 was 0.10 percent higher.

"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 Asia, Australian and Chinese markets both benefited 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 United States 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.

Elsewhere on Monday, Japanese shares closed up 1.42 percent ahead of a national holiday on Tuesday.

Hong Kong rallied 1.6 percent and Shanghai surged 7.7 percent as the Chinese securities regulator announced plans for further stimulus measures to boost the stock market.

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.