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Global stocks boosted by Fed move US stocks mirror world share rise
(about 6 hours later)
World stocks rose on Monday, regaining some ground after the US Federal Reserve cut a key bank lending rate. US stocks edged up at the start of the week, echoing the pattern of other world shares after the US Federal Reserve cut a key bank lending rate.
London's FTSE 100 index was up 0.85% by 1050BST, Germany's Dax-30 added 0.6%, and France's Cac-40 gained 1.05%. The Dow Jones industrial average added 0.06% to 13,086.72 by 1010 local time (1510BST). London's FTSE 100 index rose 0.45% and France's Cac-40 gained 0.95%.
Earlier, Japan's Nikkei share index had closed 3% up, while Hong Kong's Hang Seng index ended 5.6%. A rise in US home loan defaults has triggered fears of a financial crisis.
US and European markets had stabilised on Friday after the Fed cut the rate at which it lends to banks in an effort to stem the heavy losses in world markets. On Friday the Fed cut the rate of overnight loans to banks to try and stall the recent spate of losses.
EU spokesperson Amelia Torres said stocks appeared to be calmer on Monday, but added that it was premature to predict what impact the turmoil would have on the EU.
But US Republican senator Richard Shelby, a former chairman of the US Senate's banking and housing committee, said the crisis would worsen before things improved.
Some firms would "not survive" the current volatility and some rates on certain sub-prime loans were set to increase, he said.
Housing slow-down
The recent market volatility has been prompted by a wave of mortgage defaults in the US as the housing market slowed dramatically after a series of interest rate rises that have made paying back loans more expensive.
Earlier on Monday, US lender Thornburg Mortgage, said it had sold $20.5bn of assets.
The firm, which has been severely hit by credit problems, said it had offloaded billions of dollars worth of mortgage-backed securities in a bid to better its financial position.
Financial shares have been hard hit due to the huge liabilities of banks and other financial firms linked to the unstable sub-prime mortgage sector.
The sub-prime sector makes loans to high-risk individuals and charges them higher rates of interest.
The sector boomed when thousands of people took out loans during the housing boom that petered out in early 2006.
Worldwide stocks
Earlier on Monday, Japan's Nikkei share index had closed 3% up, while Hong Kong's Hang Seng index ended 5.6%.
The Nikkei had seen its biggest one-day fall in nearly six years on Friday, and other Asian markets had also slumped.The Nikkei had seen its biggest one-day fall in nearly six years on Friday, and other Asian markets had also slumped.
People still feel the market isn't really stable Kingston Lin, Prudential Brokerage.People still feel the market isn't really stable Kingston Lin, Prudential Brokerage.
At Monday's close, the Nikkei was at 15,732.48 points, up 458.80 points, or 3%, from Friday.At Monday's close, the Nikkei was at 15,732.48 points, up 458.80 points, or 3%, from Friday.
South Korean shares also surged ahead, with its Composite Stock Price Index closing up 5.7% at 1,731.27, its biggest percentage gain in more than five years, according to the Korea Exchange.South Korean shares also surged ahead, with its Composite Stock Price Index closing up 5.7% at 1,731.27, its biggest percentage gain in more than five years, according to the Korea Exchange.
Australian shares closed up 4.6% and Chinese stocks were ahead by 5.33%.Australian shares closed up 4.6% and Chinese stocks were ahead by 5.33%.
Financial stocks, which had been hardest hit in the recent sell-off, led the Asian rebound, pushing MSCI's index of Asian financial stocks up 5.3%.Financial stocks, which had been hardest hit in the recent sell-off, led the Asian rebound, pushing MSCI's index of Asian financial stocks up 5.3%.
India's benchmark share index opened 2.6% higher on Monday, tracking other Asian markets.India's benchmark share index opened 2.6% higher on Monday, tracking other Asian markets.
Caution
The recent market turmoil has been triggered by a wave of mortgage defaults in the US as the housing market slowed dramatically.
Markets across Europe and Asia were similarly buffeted on fears of a wider crisis in the financial system due to the huge liabilities of banks and other financial companies linked to the unstable sub-prime mortgage sector.
"Investor confidence has recovered a bit. Still, there are lingering worries over when the sub-prime crisis will actually end," said George Hsieh, who manages $545m for Capital Securities Investment Trust in Taiwan.
The Reserve Bank of Australia injected $2.67bn into the banking system to ward off pressure on some short-term market interest rates.The Reserve Bank of Australia injected $2.67bn into the banking system to ward off pressure on some short-term market interest rates.
The Asian share gains were at levels last seen in April 2003, but some investors remained wary of the credit crisis.
"People still feel the market isn't really stable," said Kingston Lin, associate director at Prudential Brokerage.
"There's buying, but I think other people are selling into the rally. It's not safe to be aggressive."