Stocks surged on Tuesday, after world policymakers readied plans to inject cash into banks in the biggest effort yet to ease the global financial crisis.
Fears of a looming global recession were not dead, but for now, the sweeping emergency steps being enacted by governments reduced the immediate risk of a worldwide financial system failure.
The gains came after Wall Street shares rocketed 11% on Monday as investors welcomed fresh moves to deal with the financial crisis and news the United States government intended to quickly put in place its $US700 billion bank bailout.
Shares in the Asia-Pacific region rallied, with Japan's Nikkei index soaring 14% by the close on Tuesday, its biggest-ever gain, as investors cheered international efforts to aid banks. Hong Kong's Hang Seng was 4.2% higher at the close.
The Australian share market ended 3.7% up after the Wall Street result and news of the Australian government's $A10.4 billion economic stimulus package.
The package, announced by Prime Minister Kevin Rudd, will allow for one-off payments to low-wage earners and pensioners and follows earlier announcements of guarantees of bank deposits for three years.
New Zealand's benchmark index also posted a strong result, up 5.9% at the close.
In Europe, shares extended gains in morning trade on Tuesday, with he pan-European FTSEurofirst 300 index up 5.4%.
US expected to buy into banks
US President George W Bush is expected on Tuesday to announce radical plans to intervene in the American financial system after his earlier proposals failed to inspire confidence in the markets.
It is thought the US Treasury will buy shares in the top nine US banks. It follows similar action by European governments.
The BBC reports it is thought the original idea of buying up bad mortgage debt will be expanded and $US250 billion will instead be spent on buying directly into banks.
The idea is banks will then start having enough cash to lend again so the credit markets will start to thaw.
All this amounts to partial nationalisation of the banking system - almost a complete reversal of policy by the Bush administration.
The move follows pledges by the governments of Britain, Germany, France and other European countries of more than 1 trillion euros to bolster their own banks through guarantees and other emergency measures. The sums are a maximum, and might not all be spent if the financial crisis eases.
Many countries have also taken action to reassure savers by guaranteeing bank deposits.