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European markets recover lost ground
(Agencies)
Updated: 2008-10-09 20:13

And the news that the governments of France, Belgium and Luxembourg will give struggling lender Dexia SA a yearlong guarantee on its new loans and deposits, sent the company's shares soaring by 18 percent.

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No one in the markets though is willing to call an end to the turmoil that has gripped stock markets over the last few days, until banks start lending to each other and money market rates decline and spreads narrow.

"There's so much uncertainty as to what happens next and such a great reliance on seeing those interbank rates come down that until we see any real progress here, normality in equity markets does still seem to be some way off," said Matt Buckland, a dealer at CMC Markets.

The pressures will remain for some time, according to US Treasury Secretary Hank Paulson, who warned that further banks in the world's largest economy will fail despite the $700 billion bailout package agreed by US lawmakers just last week.

The nationalisation of Kaupthing, Iceland's largest bank, has also fueled concerns about the viability of the financial sector in Europe.

Asian markets were mixed overnight as investor enthusiasm over Wednesday's rate cuts around the world was tempered by ongoing fears about the strains in the credit markets and the prospect of a deep global recession, which would hit Asian exporters hard.

Tokyo's benchmark Nikkei 225 index rose more than 1 percent but fell back to close down 0.5 percent to 9,157.49, a five-year low. That followed a 9.4 percent plunge Wednesday, its biggest one-day drop since the 1987 market crash.