3 Oct 2008

World markets wary over bailout

10:00 am on 3 October 2008

Shares have fallen sharply in the United States and Europe with investors cautious over whether the House of Representatives will back a revised bank rescue plan.

The House is due to discuss the $US700 billion bailout on Thursday, with a vote expected on Friday. The bill was passed by the US Senate on Wednesday.

On Wall Street, the Dow Jones index shed more than 3% while the S&P 500 and Nasdaq dropped 4%.

The falls came as France said it would host a summit on the financial crisis on Saturday.

In Britain, the FTSE 100 closed was down 1.8% to 4,870.3 points; Germany's Dax index shed 2.5% and France's Cac 40 lost 2.3%.

Sentiment was further hit by glum economic data - showing that the number of people filing for new unemployment benefit claims rose to a seven-year high, while factory orders saw a steeper-than-expected drop in August.

A number of changes had to be made to the bail-out plan in order to help win approval in the Senate.

These include raising a government guarantee on savings from $US100,000 to $US250,000; tax breaks to help small businesses; expansion of child tax credit and help for victims of recent hurricanes.

President George Bush said that the package was "essential to the financial security of every American".

Senate majority leader Harry Reid, a Democrat, said he was happy with the result.

House Speaker Nancy Pelosi said congressional leaders would not risk bringing the measure to the floor without being confident it would pass, avoiding a repeat of the defeat by 228-205 votes on Monday.

European talks

The office of French President Nicolas Sarkozy said the special meeting on Saturday would discuss a co-ordinated response to the financial turmoil amongst European members of the G8 ahead of a meeting of world finance leaders in Washington next week.

UK Prime Minister Gordon Brown is due to attend, together with German Chancellor Angela Merkel, Italian Prime Minister Silvio Berlusconi and European Central Bank President Jean-Claude Trichet.

The BBC reports France and Holland favour a European response to help banks hit by the credit crisis but Germany and Luxembourg believe a joint rescue plan is not necessary.

European leaders have denied speculation that they want to establish a unified 300 billion euro ($US418.4 billion) banking rescue deal along the same lines as the US plan.