U.S. stocks rebound after bailout failure
(CNN) — U.S. stocks bounced back Tuesday after Congressional lawmakers rejected a $700 billion bailout plan aimed at stabilizing the financial system, triggering economic turmoil around the world.
Women watch a large screen displaying India’s benchmark share index in Mumbai.
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The Dow Jones industrial average rose 236 points in early trading Tuesday, after a record 777-point fall the day before that marked the worst percentage drop for stocks since the 1987 crash.
That sharp slide continued in Asian markets Tuesday, although most of the indexes there closed off their low of the day.
Japan’s Nikkei lost 483 points, or 4 percent, while Australia’s markets fell 4.3 percent and Taiwan’s stocks lost 3.6 percent. But Hong Kong’s Hang Seng closed narrowly higher, and Europe’s major indexes were mixed in early trading there.
Art Hogan, chief market strategist for Jefferies & Co., told CNN that a possible rebound in the stock market — and for bank stocks in particular — was not just a case of bargain hunting.
He said Tuesday’s market action looks like it will be driven by hope that Congress will pass a modified financial bailout bill in the next few days. “If the sell-off was predicated on us not passing a rescue package yesterday, then there’s a common belief that we’ll get a rescue package sometime this week,” Hogan said.
The credit crisis that prompted the bailout proposal, and attempts to revive the plan, are likely to be the focus of attention for investors once again Tuesday.
U.S. President George W. Bush said Tuesday he remained disappointed by the House’s failure to pass the financial bailout package, but he would continue to work for its approval.
“I am disappointed by the outcome but I assure our citizens and citizens around the world that this is not the end of the legislative process,” the president said in televised remarks from the White House.
European markets were modestly mixed on Tuesday, with Britain’s FTSE 100 little changed at 4,820 at 1310 GMT and France’s CAC down 0.7 percent.
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said the London market clung to hopes of a fresh vote in the U.S. later in the week.
“This deal is not dead in the water and there are hopes that when Congress reconvenes it could still go through,” he told the Press Association.
In Russia stock exchanges suspended trading soon after markets opened Tuesday after shares on the main index plunged more than 8 percent.
Both exchanges — the main RTS index and the MICEX currency exchange — reopened later in the day, the indices said.
The Bank of Japan on Tuesday morning pumped another 2 trillion yen ($19.23 billion) into money markets, amid an effort among the world’s central banks to calm worries about a global financial crisis, The Associated Press reported.
The Bank of Japan in recent weeks has been injecting trillions of yen by the day to add liquidity into the system. The latest brings the bank’s infusion to a total of 20 trillion yen ($192.3 billion), AP reported.
And the Irish government said it would guarantee all deposits in Irish banks following a massive drop in the value of Irish bank stocks on Monday.
The Belgian government announced Tuesday morning a €6.4 billion ($9.2 billion) plan to rescue faltering bank Dexia, which ran up huge losses in its U.S. operations. Shares in the French-Belgian bank fell nearly 30 percent Monday, triggering emergency talks with government officials.
The latest market turmoil around the world started after U.S. lawmakers in the House of Representatives on Monday voted against the biggest proposed government intervention in the U.S. economy since the Great Depression of 1929.
The bailout proposal would have granted the Treasury secretary authority to buy up toxic mortgage-related assets in troubled banks in hopes of easing the flow of credit and reviving the moribund housing market.
Government officials, Treasury chiefs and political leaders from both sides of the political divide thought they had agreed Sunday on the details of the $700 billion rescue plan.
Republicans and Democrats blamed each other when the plan was rejected Monday in the House of Representatives by 228 to 205 votes. And as it became apparent the vote was lost, the Dow Jones plunged.
Monday’s plummet wiped out $1.2 trillion in market value, the first post-$1 trillion day ever, according to a drop in the Dow Jones Wilshire 5000, the broadest measure of the stock market. However the 7 percent decline does not rank among the top 10 percentage declines.
Even if it eventually passes, the bailout is seen as the beginnning of a long process at cleaning up the bad debt mess. Treasury Secretary Henry Paulson said he would continue to work with congressional leaders to draft a new plan that will be passed.
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