Markets surge as toxic debt plan unveiled

The New Zealand sharemarket reached a five-week high yesterday as the US Treasury's US$1 trillion ($1.75 trillion) plan to remove the canker of toxic debt from the US financial system fired a global sharemarket rally.

The NZX-50 rose as much as 3.3 per cent during trading but eventually closed 1.7 per cent higher.

While welcoming the news, local institutional investors were not convinced yesterday marked a turning point for the market.

US investors, on the other hand, welcomed US Treasury Secretary Timothy Geithner's plan to remove up to US$1 trillion of toxic assets by harnessing private capital to help clean up banks' balance sheets.

The US Government is to inject an initial US$75 billion to US$100 billion from the original US$700 billion bank bailout fund into two separate schemes. The money will hopefully be matched with private capital and leveraged to buy the most toxic assets held by banks, as well as illiquid secondary mortgage assets.

Geithner pleaded with private investors to take risks alongside him, admitting: "There is no doubt the Government is taking risk. You cannot solve a financial crisis without the Government assuming risk."

The launch of his Public Private Partnership Investment Programme (PPIP) pleased markets, with the Dow Jones Industrial Average - which was also boosted by an unexpected 5.1 per cent increase in US home sales last month - closing 6.8 per cent higher. In London, the FTSE 100 shadowed the rise, closing up 109.96 points or 2.9 per cent at 3952.81.

Bank shares led the rally, with shares in Citigroup and Bank of America trading up 16 per cent and 18.5 per cent respectively.

The NZX-50 quickly followed overseas markets higher on opening, peaking 86 points or 3.3 per cent higher at 2677.52 before drifting off its highs during the afternoon to close 43.91 points or 1.7 per cent higher at 2635.33, still its best finish in more than a month.

The dual-listed banking stocks led the charge, with ANZ Banking Group closing 90c or 4.9 per cent higher at $19.30 and Westpac gaining 65c or 2.8 per cent to $23.65.

Local fund managers were far from exuberant about the US Treasury's plan and the equity market gains it sparked.

"This is a continuation of the efforts by regulators and bankers to stop the rot and to get ourselves on to a footing to go forward so it's incrementally positive in that respect," said Tower Asset Management equities manager Paul Robertshawe.

"Share prices can move before the economic cycle turns or bottoms, so I guess the market's taken a view that incrementally we are closer to that point in time in my view."

Rickey Ward of Tyndall Investments was not convinced the bear market was at an end yet.

"You've seen pockets of improvement around the globe, but if there's improvement why are they chucking a lot of money at this problem still?"

AROUND THE WORLD

NZX- 50+1.7 per cent

ASX- 200+0.8 per cent

Nikkei- +3.3 per cent

Hang Seng- +3.5 per cent

Dow Jones- +6.8 per cent

FTSE- +2.9 per cent

- AGENCIES