KEY POINTS:
A global banking rescue package which will see more than US$245 billion ($304.5 billion) injected into the world's struggling credit markets sparked a strong stock market rally yesterday.
Responding to the growing credit crisis - which is destabilising international banking systems - the US Federal Reserve said it would lend up to US$200 billion to banks on favourable terms. For the first time since the credit crisis began, the Fed coordinated the effort with central banks in Europe and Canada, which plan to inject up to US$45 billion into their banking systems.
The news was enough to spark a strong rally in Australia and New Zealand where sharemarkets bounced back from several days of falls.
The NZX-50 rose 0.69 per cent while the ASX-200 - which had shed 5.5 per cent in the past four days - rose 2.4 per cent. There were also big rebounds throughout Asia with Japan's Nikkei index closing up 1.6 per cent and Hong Kong's Hang Seng index closing up 1.28 per cent.
Those rises followed the strongest rise in five years on Wall St where the Dow Jones index rose 3.55 per cent in Tuesday trading.
The rescue plan sees the the Fed expand its securities lending programme, offering up to US$200 billion of highly-liquid US Treasuries to primary dealers, secured for 28 days.
It also significantly expanded the types of securities that can be used as collateral for loans. In effect, the plan allows banks to exchange unwanted mortgage notes for easy-to-sell government securities. They will be distributed through a series of weekly auctions.
However, the US central bank also said it would not accept private mortgage-backed securities that credit ratings agencies had put under review for possible downgrades.
That takes a bite out of the eligible debt, although the Fed said there may be as much as US$1 trillion that would qualify for the auctions.
"In the near term, the Fed and global central banks have provided the thing everyone needed, and that's cash," said Martin Blum, head of emerging markets research at UniCredit in Vienna.
Despite the positive market reaction, some analysts questioned whether the latest round of central bank efforts would have much staying power.
"This Fed action is good for a day or two," said Michael Cheah at AIG SunAmerica Asset Management.
FUND INJECTION
* US Federal Reserve: US$200 billion
* Bank of England: US$20 billion
* European Central Bank: US$15 billion
* Swiss National Bank: US$6 billion
* Bank of Canada: US$4 billion
