KEY POINTS:
Australian banking stocks soared yesterday on news that the Australian and New Zealand Governments would guarantee deposits.
On the Australian stock exchange ANZ rose 13 per cent, Westpac 9 per cent and ASB parent Commonwealth Bank closed up 6.7 per cent.
News that EU nations would temporarily guarantee interbank loans and may take equity stakes to prop up failing banks also buoyed the sector, which has been paralysed with fear for the past month.
The US Government has already said it will take equity stakes in banks if it needs to. More details on a US banking package were expected last night.
Reserve Bank governor Alan Bollard said yesterday that New Zealand authorities had not been working on any plans to inject equity capital directly into banks.
"We don't think we need it. Australasian banks' balance sheets are quite different from those in the Northern Hemisphere which have been carrying a lot of these toxic instruments which have been downvalued massively, leaving under-provisions of capital."
Big rises in the banking sector saw Australia's ASX-200 close up 5.6 per cent.
The New Zealand sharemarket endured a seesaw day on light volumes, ending down slightly.
The NZX-50 was up 1.4 per cent, by lunchtime. But the pace was not sustained and it closed down 0.8 per cent.
In Asia the news was also good with Hong Kong's Hang Seng up by 10 per cent.
Hamilton Hindin Greene director Grant Williamson said moves by various Governments to find solutions to the credit crunch had buoyed sentiment.
"I think these markets - New Zealand and Australia - are rallying in anticipation of improvement from overseas, with the expectationsof some good news to finally come through regarding the financialcrisis.
"But investors are still very hesitant, still very cautious, and there's still a lot of money on the sidelines that won't be coming in until there's some sort of conclusion to what's been happening overseas."
ASB Securities adviser Stephen Wright said the move to guarantee deposits had helped to restore some confidence.
"We certainly haven't had the demand for Kiwi Bonds and Government stock that we were having."
But more volatility was likely.
"As we've seen quite a few times before, some promising attempts have been made to resolve the problems and they haven't always been successful.
"We're still in the hands of overseas markets ... they'll be the judge whether what's happened so far is enough, or at least on the right track."
- additional reporting Brian Fallow
