-- Three-month Libor rate falls more than one-third of a point
-- Bernanke endorses second stimulus package
-- European banks line up for rescue packages
-- China's economic growth slows
The three-month Libor rate fell more than one-third of a percentage point, the biggest one-day drop in nine months for the benchmark interbank rate in one sign that banks may have the confidence to lend to each other again, crucial to reactivating the world economy.
The chairman of the US Federal Reserve told Congress on Monday that another wave of government spending may be needed as the economy limps through what could be an extended period of subpar growth. "With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," Fed chief Ben Bernanke said in his first endorsement of a second US stimulus package.
That followed reports that European powers were drawing up their own plans.
British Finance Minister Alistair Darling told the Sunday Telegraph that Britain will need to borrow more to fund the public spending needed to fend off the worst of the downturn. The Financial Times said Britain was planning to fast-track billions of pounds for building projects.
French President Nicolas Sarkozy might speed up rail projects and help car manufacturers, France's Le Monde newspaper said on Monday. Sarkozy could also reveal measures to fight rising unemployment this week. Germany is looking at measures to stimulate investment in specific sectors, a government spokesman said.
US stocks rose on the prospect of another government boost to taxpayers similar to one last summer when the Treasury sent out $100 billion of checks to jump-start the economy. The Dow and the S&P were up nearly 2 percent each. European stocks fared well as banks on the continent prepared to make use of state rescue packages.
The Swedish government presented a vast plan worth 1.5 trillion kronor (152.2 billion euros, 206.1 billion dollars) to help its financial sector if it comes under more pressure from the global credit crisis. "The stability plan gives the government a mandate to manage problems such as liquidity shortages or potential solvency problems in the future, under predictable forms and where taxpayers' interests are protected," it said in a statement.
Swedish Finance Minister Anders Borg has repeatedly stated that the country's banks are in good financial shape and not in need of any handouts from the state. But the banks have been affected by the global liquidity shortage.
Banks and financial institutes with liquidity problems will therefore be allowed to apply for loans from the 152.2-billion-euro so-called "guarantee programme".
The loans will be granted for a fee and with specific conditions attached, including restrictions on management's bonuses, raises and golden handshakes.
In addition, the government said it would create a 15-billion-kronor (1.5-billion-euro, 2.04-billion-dollar) "stability fund" to help banks in case of potential solvency problems in the future.
The proposal also enables the state to provide capital to banks in exchange for shares, and in certain situations to become a shareholder through forced redemption of shares. The plan will be available to Swedish banks and financial institutes until April 30, 2009, though the government reserved the right to extend it until December 31, 2009 at the latest.
Austria's parliament approved a 100-billion-euro (134-billion-dollar) bailout plan on Monday to stabilise the country's banking sector in the fallout from the global financial crisis. Vienna will guarantee up to 75 billion euros in loans and set aside 15 billion euros for injecting money into troubled banks. A further 10 billion has been pooled to guarantee the savings of members of the public.
Chancellor Alfred Gusenbauer, who unveiled the scheme last week after a meeting of European leaders, told the Austrian parliament that the money was a not a gift. "We are not giving banks a present," he said during the parliamentary debate on the package.
Individuals' bank deposits will have unlimited protection until December 31, 2009. After that time, the state will guarantee up to 100,000 euros per account. Before the law was passed, just 20,000 per account was protected. Bank deposits for business account holders will be guaranteed up to 50,000 euros - an increase from 20,000 euros before the package was approved.
The French government will inject 10.5 billion euros (14 billion dollars) into the country's six biggest banks, Finance Minister Christine Lagarde said on Monday. Among the beneficiaries, the biggest bank Credit Agricole will get three billion euros, BNP Paribas will get 2.55 billion and Societe Generale will get 1.7 billion, in moves to support lenders hit by the financial crisis.
Monday's comparative optimism follows weeks of market-rattling weekend announcements since Lehman Brothers collapsed in mid-September. The world's financial stewards have used previous weekends to announce emergency measures to combat the worst financial crisis since the 1930s Great Depression.
Governments have promised $3.3 trillion - about equal to the economic output of Germany - to guarantee bank deposits and bank-to-bank lending, and in some cases have taken stakes in banks with toxic assets. "There's a perception that the crisis squeeze could be beginning to abate thanks to measures from global authorities over the past few weeks," said Philip Shaw, chief economist at banking group Investec.
CHINESE GROWTH SLOWS: Premarket stirrings came from Asia, where South Korea released a $130 billion rescue package, and China reported that economic growth eased in the third quarter and forecast a further slowing in the fourth quarter.
Chinese conglomerate CITIC Pacific added to the global turmoil, warning of potential foreign exchange losses of nearly $2 billion and accusing its senior finance director of trading without approval. Other major economies also showed signs of a slowdown. The Bundesbank said Germany's economy probably stagnated in the third quarter.
In India, the central bank unexpectedly cut its key lending rate for the first time in more than four years. One indicator of how the crisis is affecting the real economy will come later on Monday when American Express, the fourth-largest US credit-card issuer, reports earnings, probably before the closing bell. Because American Express has a well-to-do clientele, investors are looking for indications that higher income people are cutting back on spending or falling behind on payments.