US bailout lends hope to world markets

US bailout lends hope to world markets

The passing of America’s historic US bank bailout today will come as a relief to stock markets battered in recent weeks by fears over the financial crisis.

The Dow Jones Industrial Average on Wall Street was up nearly 2% at one stage on news of the crucial vote from the US House of Representatives and hopes are that the package will steady the recent turbulence seen in London.

But today’s green light from the lower house of US Congress has already largely been priced in to the FTSE 100 Index on these shores, according to experts.

The Footsie soared 109.9 points in the final trading session this week – a rally of more than 2% – as investors anticipated a vote in favour, which came after the London market closed.

US Senate agreement for the stalled US$397bn (€286.5bn) banking rescue overnight on Wednesday had already set the scene, with UK stocks higher on Thursday as its fate appeared sealed.

However, Henk Potts, equity strategist at Barclays Stockbrokers, said markets would now turn their attentions to how the bank package can be implemented and its implications.

“It will take a while to see the effects in terms of the bail-out – its processes and how quickly the credit markets can return to normality,” he said.

The implications for blue chip banks in particular will be eyed by investors over the coming days and weeks, with details of how they may be able to benefit from the package still unclear.

Some banks, including Barclays, Royal Bank of Scotland and HSBC, may be able to take part in it, with an estimated £95bn (€121bn) of assets that could qualify for the scheme.

David Jones, chief market strategist at IG Index, said while it may be too soon to tell the longer-term effects of the rescue, its immediate impact should be to help calm the recent wild swings endured by UK stocks.

Yet a sustained recovery may still be some way off, he added.

“The worry is that any short-term bounce back by the markets, assuming the bail-out plan goes through, will just be used to offload shares at better prices - it is still too early to start talking about any sort of sustainable recovery by stock markets at this stage,” he cautioned.

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