World stock and commodity markets surged this morning in reaction to China's plan to spend nearly €453 billion on stimulating its economy as G20 finance ministers pledged to do what is needed to revive financial markets.
European share prices rose by midday today, boosted by mining stocks which jumped after China unveiled a $586 billion economic stimulus plan to boost domestic demand.
At 11.51 GMT, the FTSEurofirst 300 index of top European shares was up 2.8 per cent at 940.64 points.
China last night approved a $586 billion government spending package and announced a shift to "moderately easy" monetary policy despite having already made three interest rate cuts since mid-September.
The money is to go into housing, infrastructure and post-earthquake reconstruction in China over the next two years.
"Governments clearly understand this is very serious and are working on two fronts: Keynesian, with fiscal stimulus, and Friedman with cutting interest rates and putting liquidity into the system," said Philippe Gijsels, strategist at Fortis Bank, in Brussels.
Mr Gijsels said US stocks rallied on Friday after the European close, despite weak US jobs data, which indicated that bad news was now factored into share prices.
"This market is very much oversold, we have been very cautious on the markets since January .. the chances are very good for a bear market rally from now," he said.
The Chinese plan provided a boost to stock markets with Ireland’s Iseq index gaining over 5 per cent this afternoon, Britain's FTSE was up 3 per cent higher, Germany's DAX up 3.4 per cent while France's CAC added 3.5 per cent higher.
"Commodity stocks are rising, on the other hand you see that financial stocks are having further problems, so while there is a little hope for the economic scenario, we still come back to the same old problems," said Hans-Juergen Delp, investment strategist at Commerzbank in Frankfurt.
Santander fell 5.6 per cent to €7.87 after it unveiled a surprise €7.2 billion rights issue at €4.5 a share.
Europe's biggest insurer Allianz fell 1.6 per cent after reporting worse-than-expected third-quarter operating figures, and abandoning its operating earnings targets for this year and next.
Oil rose more than 5 per cent today, fuelled by hopes that plans around the world to lift growth could avert recession and by Saudi Arabia's intention to cut crude supplies to Asia in December.
US crude rose $3.22, or 5.3 per cent, to $64.26 a barrel by 12.07pm, having earlier risen as high as $64.74. London Brent crude gained $3.22 to $60.57.
Chinese stocks rose sharply on the news of the stimulus package, with the Shanghai Composite Index ending 7.3 per cent higher at 1,874.80.
Tokyo's Nikkei 225 closed up 5.8 per cent to 9,081.43 while Hong Kong's Hang Seng Index closed up 3.39 per cent at 14,726.59.
China's central bank chief said today there was no possibility of the country's currency depreciating as a way to help boost exports and keep the country's growth rate strong.
"We don't see any possibility," Zhou Xiaochuan, governor of the People's Bank of China, told reporters when asked whether China should depreciate the yuan to help its exporters.
"However, up to now we haven't yet seen any substantial changes in the balance of payments. It is too early to say that," he said.
Agencies