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US set to outline banking rescue US set to outline banking rescue
(about 2 hours later)
The US government is due to unveil a $250bn (£143bn) bank rescue plan later, as world shares rise in anticipation.The US government is due to unveil a $250bn (£143bn) bank rescue plan later, as world shares rise in anticipation.
Echoing steps taken by the UK and other European countries, the US will buy stakes in its largest banks including Goldman Sachs and Morgan Stanley.Echoing steps taken by the UK and other European countries, the US will buy stakes in its largest banks including Goldman Sachs and Morgan Stanley.
President George W Bush and Treasury Secretary Henry Paulson are due to make statements before US markets open.President George W Bush and Treasury Secretary Henry Paulson are due to make statements before US markets open.
The money will come from the $700bn bail-out package approved by US lawmakers earlier this month.The money will come from the $700bn bail-out package approved by US lawmakers earlier this month.
Special meetingSpecial meeting
The US plan - effectively part-nationalisation - comes after the bosses of the country's largest banks were summoned to a special meeting at the US Treasury on Monday.The US plan - effectively part-nationalisation - comes after the bosses of the country's largest banks were summoned to a special meeting at the US Treasury on Monday.
These steps will allow us to restore more normal market functioning and encourage private capital to further support the reinvigoration of financial markets Federal Reserve chairman Ben BernankeThese steps will allow us to restore more normal market functioning and encourage private capital to further support the reinvigoration of financial markets Federal Reserve chairman Ben Bernanke
Although exact details have yet to be released, reports say the first purchases will be in the nine largest US banks, which also include Citigroup, Wells Fargo and Bank of America.Although exact details have yet to be released, reports say the first purchases will be in the nine largest US banks, which also include Citigroup, Wells Fargo and Bank of America.
The aim - as is the case with similar moves in the UK - is to increase the banks' depleted capital reserves.The aim - as is the case with similar moves in the UK - is to increase the banks' depleted capital reserves.
The US Treasury hope that this in turn will allow the banks to resume more normal lending patterns and help alleviate the continuing credit crunch.The US Treasury hope that this in turn will allow the banks to resume more normal lending patterns and help alleviate the continuing credit crunch.
In addition to the stock purchases, the US Treasury is also expected to announce that the state will temporarily provide insurance for loans between banks.In addition to the stock purchases, the US Treasury is also expected to announce that the state will temporarily provide insurance for loans between banks.
Wells Fargo is one of the banks expected to be involvedWells Fargo is one of the banks expected to be involved
This is a further move aimed at increasing inter-bank lending, which keeps the banking system working, enabling banks to lend to other businesses and private individuals.This is a further move aimed at increasing inter-bank lending, which keeps the banking system working, enabling banks to lend to other businesses and private individuals.
Speaking overnight, US Federal Reserve chairman Ben Bernanke said he was confident the moves would be successful.Speaking overnight, US Federal Reserve chairman Ben Bernanke said he was confident the moves would be successful.
"These steps will allow us to restore more normal market functioning and encourage private capital to further support the reinvigoration of financial markets," he said."These steps will allow us to restore more normal market functioning and encourage private capital to further support the reinvigoration of financial markets," he said.
Share surgesShare surges
Anticipation of the US announcement has had a major impact on global shares:
  • Japan's main Nikkei index closes Tuesday up 1,171 points or 14% at 9,448, the biggest one-day rise in its history
  • The UK's FTSE 100 was up 158 points or 3.7% at 4,415 in morning trading
  • Germany's Dax had advanced 173 points or 3.4% at 5,236, while France's Cac had added 152 points or 4.3% at 3,683
  • Wall Street's Dow Jones ended Monday up 936 points or 11% at 9,388
  • Australian shares advance 431 points or 4%
 Anticipation of the US announcement has had a major impact on global shares:
  • Japan's main Nikkei index closes Tuesday up 1,171 points or 14% at 9,448, the biggest one-day rise in its history
  • The UK's FTSE 100 was up 235 points or 5.5% at 4,500 in morning trading
  • Germany's Dax had advanced 235 points or 4.7% at 5,298, while France's Cac had added 183 points or 5.2% at 3,714
  • Wall Street's Dow Jones ended Monday up 936 points or 11% at 9,388
  • Australian shares advance 431 points or 4%
'Too small''Too small'
The US government is expected to buy preference shares in the banks.The US government is expected to buy preference shares in the banks.
Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.
US taxpayers may even end up making a profit from the shares if the rescue packages work and the banks recover, but that is not guaranteed.US taxpayers may even end up making a profit from the shares if the rescue packages work and the banks recover, but that is not guaranteed.
Despite the big rises in global shares, some analysts have questioned whether the anticipated US move is bold enough.Despite the big rises in global shares, some analysts have questioned whether the anticipated US move is bold enough.
"The actual amount [of the plan] is still a little small," said Nagayuki Yamagishi, a strategist at Mitsubishi UFL Securities."The actual amount [of the plan] is still a little small," said Nagayuki Yamagishi, a strategist at Mitsubishi UFL Securities.
European leadEuropean lead
America's move, due to be announced around 1330 BST, comes a day after the UK said it would inject up to £37bn of taxpayers cash into British banks Royal Bank of Scotland, Lloyds TSB and HBOS.America's move, due to be announced around 1330 BST, comes a day after the UK said it would inject up to £37bn of taxpayers cash into British banks Royal Bank of Scotland, Lloyds TSB and HBOS.
And European governments that share the euro are putting aside more than 1 trillion euros to protect banks through guarantees and other emergency measures.And European governments that share the euro are putting aside more than 1 trillion euros to protect banks through guarantees and other emergency measures.
The bulk of the money will be used to guarantee lending between banks.The bulk of the money will be used to guarantee lending between banks.
The cash will also be used to take stakes in ailing banks.The cash will also be used to take stakes in ailing banks.