STOCK MARKETS around the world roared their approval yesterday, staging huge rallies as the US authorities moved towards agreement on a sweeping programme of government intervention that would put hundreds of billions of dollars of taxpayers' money at risk in an effort to quell the credit crisis.
In an unprecedented day of trading, the Irish market rose by more than 10 per cent, with historic gains for the banks as the Irish Financial Services Regulatory Authority followed the lead from the US and Britain to curb short-selling of financial stocks.
The Iseq rose by 383.62 points or 10.2 per cent to 4,136.32, as financial stocks soared by up to almost 40 per cent, hedge funds looked to cover their short positions and long-only institutions made a return to investing in Irish banks.
But Dublin was not alone. Shanghai surged 9.5 per cent, in the biggest daily gain for seven years, to 2,075.091. Hong Kong's Hang Seng gained 9.6 per cent to 19,327.73, breaking a seven-day losing streak. In London, the FTSE 100 had its biggest daily gain in its 24-year history, jumping 8.44 per cent, while in New York the SP 500 was up 4 per cent in afternoon trading, having jumped 4.3 per cent on Thursday. The rallies in London and the US were partially fuelled by bans on short-selling in financial stocks.
The MSCI emerging market equities index rose 10 per cent, its largest one-day gain since December 1987, led by Russia, China and Brazil. After being closed for the past two days, Russia's Micex index surged 29 per cent, its largest gain since it was launched in 2001.
Investors started exiting the safe havens of government bonds and gold. The dollar was slightly lower, while the yen registered larger falls.
According to one Dublin broker, yesterday was a "historic day" and "one of the busiest in recent memory". He attributed most of the gains to the short-selling ban and said that without this, banks would only have been up by about 10 per cent. Despite the gains, brokers did not welcome the short-selling ban, as they maintained that the increases were artificial, given that fundamentals in the banking sector remain poor.
Moreover, with about 30 per cent of their business coming from hedge funds which favour shorting stocks, it is another blow to the already badly hit stockbroking business. While hedge funds are now banned from shorting financial stocks, one broker suggested that they might now look at other stocks to short, with construction stocks a possible target.
Despite the euphoria, money markets were cautious as term money market and commercial paper rates rose further. Traders said lending between banks remained frozen, as trust between counterparties has evaporated. - (Additional reporting, Financial Timesservice)
