KEY POINTS:
The impact of central banks' efforts to stave off the credit crisis will be put to the test when most markets reopen today following the Easter break.
On Friday (NZT) Wall Street finished its best week in nearly two months on the strength of financial shares, which have borne the brunt of investors' wrath since the credit crisis unfolded last summer.
The benchmark S&P 500 index gained 2.4 per cent for the day, up 3.2 per cent for the week during which the Federal Reserve unveiled a series of steps to relieve the credit crisis.
New Zealand's NZX-50 was down 1.2 per cent on Thursday, the last trading day, hovering near two-year lows.
Central bankers around the world have been busy over the break following the introduction of an array of initiatives last week when the US central bank pushed JPMorgan Chase to acquire Bear Stearns, started lending directly to securities firms for the first time since the Great Depression and lowered the benchmark fed funds rates by 75 basis points to 2.25 per cent.
The Bank of England pumped an extra £5 billion ($12.52 billion) into money markets and now there is speculation that, facing their toughest period for over a decade, the Fed, the BoE and the European Central Bank are exploring the feasibility of using taxpayers' money to shore up the mortgage-backed securities market.
In the United States there is US$6 trillion ($7.6 trillion) in mortgage securities outstanding which would take problem debt off the balance sheets of banks and alleviate the cause of the credit crunch, but it would put taxpayers at risk.
The Fed and the BoE denied reports over the weekend.
Banks have written down over US$125 billion of assets since November, hammering their shares.
Banks will still not lend money to each other in the wholesale interbank market that ordinarily provides the lubrication to keep the global financial system turning because the fundamental problem that remains to be tackled is how to put a floor under plunging US real estate prices
Mortgage-backed securities have plunged in value amid a credit squeeze sparked by low quality mortgages in the United States, leading to a vicious circle of forced sales, falling prices and weakening balance sheets for banks.
The crisis will be at the centre of talks on Friday between British Prime Minister Gordon Brown and French President Nicolas Sarkozy who will urge banks to make "full and immediate disclosure" of write-offs.
The two leaders are increasingly concerned that confidence in financial markets is being hit by uncertainty over the scale of bad debts on banks' books, which some estimates put as high as $757 billion.
In Japan big firms have grown pessimistic about business conditions, a Government survey showed yesterday. f However, China is confident of being able to maintain fast growth despite increasing risks in the world economy, newly appointed Vice-Premier Li Keqiang said in remarks reported yesterday.
