NEW YORK (AFP) — Global shares and the dollar leapt Friday as confidence returned with a drive to create a US debt clearance mechanism, more central bank support and a ban on betting on a crash.
However top Wall Street investment bank Morgan Stanley looked to be on the way to a forced marriage, and analysts differed over whether the global crisis is past the climax.
Official funds again flooded into the market with the European, British and Japanese central banks offering more cash, taking their total injections this week into the realms of 800 billion dollars.
The London stock market jumped 6.88 percent, Paris 5.40 percent, Frankfurt 3.87, Tokyo 3.76, Hong Kong 9.6 percent and Shanghai nearly 9.5 percent.
Russian shares roared up 15.5 percent after several trading suspensions.
The dollar surged in London, where the euro fell to 1.4197 dollars from 1.4348 here late Thursday.
And the timeless barometer of confidence, gold, signalled a fall in the fear level, dropping to 855.5 dollars an ounce in Hong Kong from 875.5 dollars Thursday.
US Treasury Secretary Henry Paulson held out the prospect of a scheme to take over the mountains of bad debt that have weighed down banks, following Thursday's central bank assault to relieve market distress and underpin confidence.
Paulson, speaking after he and US Federal reserve chairman Ben Bernanke met Congressional leaders, said: "We're coming together to work for an expeditious solution."
Officials are working to tackle "the heart of this problem, which is illiquid assets on financial institutions in the United States on their balance sheets," he said.
"What we are working on now is an approach to deal with the systemic risk and the stresses in our capital markets."
Paulson did not give details, stressing any plan would need Congressional approval, but US media reports said he was considering a bailout by taxpayers like that used in the savings and loan crisis of the 1980s and '90s.
In another step to instill market confidence, the US Securities and Exchange Commission and British regulators banned the short selling of shares to check abuses.
Short selling is borrowing shares in the hope they will fall, and selling for a profit, akin to self-fulfilling bets on a crash in times of extreme market distress.
The Financial Times said Morgan Stanley was making "frantic attempts" to find a partner and was discussing selling a stake to China Investment Corp. which could end up with 49.0 percent from 9.9 percent now.
The deaily said the bank preferred to sell a stake to CIC to a merger with US bank Wachovia Corporation.
However an unnamed CIC executive was quoted as saying in Beijing that taking a holding "could be very hard now as the purchase of a stake ... could be subject to the US government foreign investment review."
Opinions varied Friday on whether the official actions to stem the vortex threatening the global economy are enough.
"The creation of a huge government-sponsored vehicle to take on so-called toxic investments in the US, short selling restrictions ... are all having a positive effect," said CMC Markets dealer Matt Buckland.
"The combined efforts are so great that there seems to be a coherent belief that this could actually be sufficient to draw a line under what has been a tumultuous 18 months for the markets."
John Kyriakopoulos, a strategist at National Australia Bank Capital, said: "Such a (debt) plan would potentially provide a long-term solution to the credit crisis."
But he commented that official actions so far "merely stopped the bank funding crisis from getting even worse, rather than reversed it."
Seiichi Suzuki, market analyst at Tokai Tokyo Securities, said: "The rally is a combination of a knee-jerk reaction to the reports of the new rescue plan and a mere tracking of movement on Wall Street."
Hong-Kong based equity strategist Christopher Wood of CLSA brokers said in his newsletter: "It is extremely important that the US authorities allow firms to fail and do not bail everyone out."
He said: "If the US authorities continue to indulge in bailouts, they risk not only further fanning moral hazard but also contaminating the credit and good standing of America."
The crisis is an issue in the US presidential election, and polls Friday indicated that Democrat candidate Barack Obama has taken back a lead from Republican John McCain.
The latest vicious chapter of the 14-month-old US subprime home-loan crisis began at the weekend with the collapse of US investment banking giant Lehman Brothers.
That was followed by the 85-billion-dollar nationalisation of insurance titan AIG, a wave of other distress signals and the rescue of British bank HBOS Thursday.
The crisis has also savaged other big Wall Street names such as Bear Stearns and Merrill Lynch.
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