WASHINGTON (AFP) — The head of the US Federal Reserve backed a stimulus plan for the flagging American economy, buoying stock markets despite gloomy unemployment figures and fears the rebound could be limited.
Asian markets tracked gains on Wall Street, where stocks soared after Fed chief Ben Bernanke said US lawmakers should consider a second stimulus plan, warning the world's largest economy risked a "protracted slowdown".
His endorsement came after a forecast that the financial crisis could push worldwide unemployment to a record high and as new bank rescue efforts were unveiled in France and Sweden.
"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," he told the House of Representatives budget committee.
When asked to say if the US economy was in recession, he replied only there was a "very serious slowdown in the economy which has very serious consequences for the public."
The fallout for workers was made clear in a report by the International Labour Organisation, which warned that the number of unemployed worldwide would increase from 190 million in 2007 to 210 million by late 2009 -- a new record.
China's weaker-than-expected economic growth figures released on Monday highlighted the extent to which the credit crunch has spread around the world.
But Australia's central bank chief sounded a note of optimism, saying the danger of a "global catastrophe" stemming from the crisis that began last year with subprime US home loans had decreased thanks to government interventions.
"At moments like this, it is hazardous to make predictions," Reserve Bank of Australia Governor Glenn Stevens told an audience in Sydney on Tuesday.
"However, the world is, it seems to me, getting on to a better path. As a result, the likelihood of a global catastrophe has in fact declined over the past couple of weeks."
Across Asia, stock markets were mainly up Tuesday, with the Tokyo Stock Exchange's benchmark Nikkei index up 3.34 percent at the close.
Sydney was up 3.9 percent, New Zealand shares rose 2.15 percent and Taipei was up 0.22 percent. Hong Kong shares were flat at midday, while Shanghai was up 0.42 percent. Seoul bucked the trend by finishing 0.95 percent lower.
The leading Wall Street index, the Dow Jones Industrial Average, soared 4.65 percent to 9,263.68 just after the closing bell Monday.
In Europe, the London FTSE 100 index of leading shares gained 5.41 percent on Monday, the CAC 40 in Paris jumped 3.56 percent, and the Frankfurt Dax added 1.12 percent.
The current crisis began with high-risk or subprime US home loans last year. The loans, then repackaged as complex investment instruments loosely known as derivatives, were resold to investors and banks around the world.
When people defaulted on those loans, it set off a chain reaction through the financial system, eventually leaving banks short of cash and hesitant to make the inter-bank loans essential to the system's smooth functioning.
It also led to several spectacular bank failures, and prompted governments around the world to put forward more than three trillion dollars to shore up banks, in addition to massive cash infusions into the banking system.
Sweden on Monday presented a plan worth more than 206 billion dollars to help its financial sector, and France injected 10.5 billion euros (14 billion dollars) into the country's six biggest banks.
Pakistan, teetering on the edge of economic meltdown, was consulting with International Monetary Fund representatives in Dubai.
Shaukat Tareen, financial adviser to the Pakistani prime minister, told AFP that Islamabad needed three to four billion dollars to head off a balance of payments crisis, but insisted IMF help was only one option.
In Washington, US Treasury Secretary Henry Paulson gave more details of the US rescue plan, saying banks had until November 14 to apply for some of the 250 billion dollars set aside for capital injections by the government.
Paulson said "a broad group of banks of all sizes" had shown interest in a capital injection.
Copyright © 2009 AFP. All rights reserved. More »
