Stock markets across Europe and Asia soared today after Washington bailed out mortgage firms Fannie Mae and Freddie Mac to salvage the US housing market, spurring investors to buy back risky assets and sell safe havens such as government bonds.
The Iseq index of Irish shares closed the day 6.7 per cent stronger as stocks surged on the back of yesterday’s announcement by the US government that it would take over the mortgage giants.
Banks were among the most heavily traded stocks, while CRH also featured prominently, as investors returned to market on speculation that the US government decision would ease problems in the mortgage market and signal an end to the credit crunch.
Irish Life & Permanent was the star performer as it rose by 12.7 per cent, tacking on 82 cent to €7.28. AIB saw its share price rise by 11.5 per cent to close the day 91 cent stronger at €8.80, while Bank of Ireland added on 59 cent – a rise of 11.17 per cent. Anglo Irish Bank was 56 cent better off at €5.80, a gain of 10.7 per cent.
Brokers said the move by the US government had helped to ease some of the fears associated with mortgage market but had not solved them.
“It looks like it will be more than a one-day bounce and it has taken a lot of the fear out of the market. However, the reasons for the bail out are still there and the move has not cured the problem.”
Building related stocks also received a boost from the news with CRH rising to €18.85, a gain of 9.5 per cent, while Grafton added 8.5 per cent to €3.80.
The US government move to take control of Fannie Mae and Freddie Mac sent global stocks jumping and bond prices falling today as investors unwound trades set to protect them against impending financial meltdown.
In Europe, the FTSEurofirst 300 stock index gained 4 per cent with the DJ STOXX bank index up 8 per cent.
Earlier, Japan's Nikkei gained 3.4 per cent and much-battered emerging markets stocks were up some 3.5 percent as measured by MSCI.
The US government took control of mortgage finance companies Fannie Mae and Freddie Mac yesterday in a huge bailout to support the US housing market and ward off more global financial market turbulence.
The action was prompted by worries over the enterprises' shrinking capital which was undermining global confidence in the financial sector, a key element of the bearish market mood that has sunk stocks and boosted safe-haven plays for more than a year.
By stepping in, the government has taken the edge off fears of a meltdown, in effect guaranteeing bond holders but also building confidence in the banking and mortgage system.
US Treasury Secretary Henry Paulson underlined the importance of the move to current economic conditions. Credit spreads on European banks and financial companies tightened sharply after the move.
Additional reporting agencies
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