World stocks rally on US bank plan

Global stock markets rocketed Monday as investors cheered the official launch of a 500-billion-dollar (368-billion-euro) US government plan to purge banks of toxic assets.

In afternoon trade on Wall Street, the Dow Jones Industrial Average was up 4.29 percent and the Nasdaq index rose 4.15 percent amid greater market optimism.

The FTSE 100 index in London closed up 2.86 percent, the Paris CAC 40 rose 2.81 percent and the Frankfurt Dax gained 2.70 percent.

In Asia, Tokyo's Nikkei-225 index leapt 3.39 percent, nearing a two-month peak, and Hong Kong stocks raced 4.78 percent higher.

"The initial response is an encouraging sign that the market thinks (US Treasury Secretary Timothy) Geithner and company are on the right path," said Patrick O'Hare of Briefing.com, a US-based market analysis company.

"Some of the best laid plans, of course, are on paper," he said.

"It is not until they are actually executed that one can gain a better sense if they are truly the best plans," he added.

US President Barack Obama said he was "very confident" of success after Geithner unveiled the plan to clean up troubled bank assets clogging up the finance system and slowing recovery in the world's largest economy.

The public/private scheme works by offering billions of dollars (euros) in US government incentives in equity and loan guarantees to entice investors to buy troubled assets and restore health to banks.

"We believe this is one more element that is going to be absolutely critical in getting credit flowing again," said Obama.

"It's not going to happen overnight, there is still great fragility in the financial systems but we think that we are moving in the right direction."

But O'Hare said "potential spoilers" included the possibility that banks might not be "willing sellers" and that private investors may not be as eager to participate as the authorities would like.

Bob Dickey at RBC Wealth Management said that although the idea of a government-private sector plan had been discussed for weeks, "some clarity on the recovery plan has instilled a glimmer of hope into the markets."

Elsewhere in Europe, Milan rose 5.77 percent, Swiss shares gained 3.01 percent, Belgium was up 2.65 percent and Spain was up 3.14 percent.

In Tokyo, the Nikkei rose ahead of Geithner's official launch of the plan closing up 3.39 percent at 8,215.53 points -- its best finish since January 29.

The Nikkei has risen in five of the past six sessions, soaring more than 1,000 points, or 14 percent, as investors look beyond the current economic downturn and focus on prospects for a recovery.

Banks were among the main winners on Monday as the US banking plan eased worries about the international credit crunch which has pulled the eurozone, Japan and the United States into recession.

France's BNP Paribas rose 9.00 percent, Italy's Unicredit soared 15.09 percent and Britain's Barclays rocketed up 15.71 percent.

Elsewhere on Monday, shares in the German auto and truck maker Daimler leapt higher in Frankfurt after the group revealed that the United Arab Emirates would become its biggest shareholder.

Daimler shares showed a gain of 1.43 percent to 21.64 euros as investors welcomed prospects for a stronger balance sheet.

Daimler, which makes Mercedes-Benz cars, said Sunday that the Abu Dhabi state investment fund Aabar Investments, would invest 1.95 billion euros (2.65 billion dollars) in return for a 9.1-percent stake.