European stock markets surge more than 5 per cent

by Sanjay Jha | October 13, 2008 at 01:16 am

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European stock markets rebound in early deals on Monday, with London, Frankfurt and Paris each up more than five per cent. Stocks also soared more than five per cent in Zurich and Amsterdam after European leaders agreed to inject billions of dollars of taxpayers' money into troubled banks in an attempt to restore confidence in the financial system.

Europe's main stock markets had plunged by about a fifth in value last week.

Shares in London rebounded this morning and there were sharp gains throughout the rest of Europe, after the UK government announced an injection of £37bn into Britain's biggest high street banks.

The FTSE 100 jumped 248 points to 4180 this morning, a gain of 6.3%. Stockmarkets across Europe rose on news of a rescue plan in the eurozone overnight, with Germany's Dax up 6.3% and France's CAC 6.8% higher. Asian markets bounced back after enduring their worst week for more than 20 years. Wall Street is also set to rally when it opens later today, with Dow Jones futures pointing to a 411-point rise.

Despite speculation that UK banking shares might be suspended, they traded as usual this morning. Shares in Barclays jumped 12% to 232p, Lloyds TSB gained 10.6% to 209.5p and HSBC was up 7.2% at 848p. News of the goverment's capital injection failed to lift Royal Bank of Scotland, which dropped 4.9% to 68.2p, and HBOS, which fell 5% to 118p.

The UK government confirmed this morning that it will pump up to £37bn into RBS, Lloyds and HBOS in an attempt to prevent the country's banking sector from melting down. Barclays said it would seek to raise £9.5bn of fresh capital from investors without government help.

After a weekend of negotiations which continued through Sunday night, the Treasury announced an unprecedented rescue plan under which bank bosses face a crackdown on pay and bonuses, and shareholder dividends will be frozen.

This came after leaders of the 15 eurozone countries unveiled a rescue plan for their troubled banking systems at an emergency summit in Paris last night. The summit followed a frenetic weekend of activity in Washington, in which the IMF, the World Bank, the G7 club of rich western nations and the broader G20 group all called for urgent and coordinated action.

Earlier the British government unveiled £37bn banking bail-out plan

The government's £37bn bail out of the banking sector will act as a "rock of stability" that other governments will soon copy, Gordon Brown said today.

The prime minister said the dramatic action would help the UK banking industry to survive the turbulence sweeping the world's financial system, and also pledged to end the era of "rewards for failure" for top executives.

"Today's plan is unprecedented but essential for all of us," Brown said at a downing street press conference .

The UK government confirmed this morning that it will pump up to £37bn into Royal Bank of Scotland, Lloyds TSB and HBOS in an attempt to prevent the UK's banking sector from melting down.

After a weekend of negotiations which continued through Sunday night, the Treasury announced a wide-ranging rescue plan under which bank bosses face a crackdown on pay and bonuses, and shareholder dividends will be frozen.

The government will take a controlling stake of up to 60% in RBS, in return for up to £20bn from the taxpayer. The bank admitted this morning that trading has deteriorated in recent weeks. The cheif executive Sir Fred Goodwin known as "Fred the Shred" for his cost-cutting reputation, and chairman Sir Tom McKillop are stepping down.

The chancellor, Alistair Darling, said that Goodwin and McKillop have waived their contractual entitlements to payoffs, as have the chief executive and chairman of HBOS who also announced their resignations today.