While you were sleeping: US toxic asset plan, Wall St rally

Tuesday 24th March 2009

The Obama administration announced plans to buy as much as US$1 trillion of toxic mortgage security assets from American banks in an effort to revive the finance sector.

The Public-Private Investment Program will draw down as much as US$100 billion of remaining bank rescue funds and use financing from the Federal Reserve and Federal Deposit Insurance Corp. debt guarantees, the Treasury said in a statement.

"We still have a long way to go and we have a lot of work to do," President Barack Obama said. The purchase plan is critical to turning around the US economy, he said.

Treasury Secretary Timothy Geithner is betting that removing the dead weight of bad loans from banks will help revive lending and free up credit markets. The plan would also seek to involve private investment partners.

Paul Krugman, the Nobel Prize-winning economist, dubbed Geithner's initiative a rehash of the "cash for trash" proposal considered by the previous Bush administration that would reward investors if asset values rose but allow them to walk away if the values fell further.

Stocks soared on Wall Street after the plans were announced and Europe shared in the rally. Prices of crude oil and copper gained.

The Dow Jones Industrial Average climbed 6.8% to 7775.86, with Bank of America soaring 26% to US$7.80, JPMorgan Chase rising 25% to US$28.86 and Citigroup surging 19% to US$3.13.

The Standard & Poor's 500 Index jumped 7.1% to 822.92 and the Nasdaq Composite rose 6.8% to 1555.77.

Sales of pre-owned homes in the US unexpectedly climbed last month, as falling prices lured more investors to the market. Purchases rose 5.1% to an annual pace of 4.72 million, according to the National Association of Realtors. The median price tumbled 15.5%.

Germany's Commerzbank climbed 9.5% and Deutsche Bank rose 8.5%, leading the DAX 30 up 2.7% to 4176.37. In London, the FTSE 100 rose 2.9% to 3952.81, led by 1 17% gain fro Old Mutual and a 16% advance in Barclays. Lloyds Banking Group rose 11%.

Rio Tinto jumped 13% as commodity prices rallied. In France, the CAC 40 rose 2.8% to 2869.57. BNP Paribas rose 9% and Societe Generale advanced 8.7%.

Copper rose to a four-month high after figures showed China, the world's biggest consumer of the metal, sucked in more of the material used to make wire and pipes.

China's purchases of refined copper gained 50% to 270,948 metric tons last month, according to customs figures. Copper futures for May delivery rose 2.5% to US$1.841 a pound on the New York Mercantile Exchange.

Crude oil also rose to a four month high, as the rally in stocks stoked optimism demand fro fuel will increase. Crude oil for May delivery rose US$1.73 to US$53.80 a barrel on the New York Mercantile Exchange.

Gold futures for April delivery slipped 0.4% to US$952.50 an ounce on the New York Mercantile Exchange as the rebound in stocks sapped demand for the precious metal as a haven.

The US dollar and the yen fell as Geithner's toxic asset plan spurred investors' appetite for risk and reduced the demand for the two biggest currencies as a safer place to park funds.

The US dollar fell to $1.3626 per euro from $1.3582 while the yen weakened to 132.18 per euro from 130.29. The yen slipped to 96.97 per dollar from 95.94.

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