Sharemarket leaps 4% as investors embrace global rescue plan: Economy roundup

A horror week for investors is ending on a positive note, with the local sharemarket leaping more than 3.9% in morning trade after a big rally on Wall Street overnight.

A horror week for investors is ending on a positive note, with the local sharemarket leaping more than 3.9% in morning trade after a big rally on Wall Street overnight.

United States investors piled back into the market, boosting the Dow Jones Industrial Average by 4% – the biggest one-day rise in six years.

The rally was sparked by news the that US Government is considering a more comprehensive solution to the financial crisis, with reports that US Treasury Secretary Henry Paulson is working on a proposal that would create an entity to deal with the billions of dollars of bad debt still clogging the financial system.

The idea has been compared to the Resolution Trust Corp formed by the US government in 1989 to fix the savings and loan industry collapse.

The thought of more stability in global financial markets spurred Australian investors too. The benchmark S&P/ASX200 index rose 180.5 points or 3.9% to 4787.0 at 11:45am AEST, recovering after falling 2.4% on Thursday to a near three-year closing low. It had lost 6% over the first four days of this week.

The big winner was beleaguered banking group Macquarie Group, whose shares have risen more than 30% after halving in value since the start of the month. The company has consistently denied reports that it will have trouble securing funding and it seems investors are finally starting to listen.

National Australia Bank has soared 12% this morning, ANZ has climbed 8.5% and Westpac is up more than 5%.

Global markets have also been stabalised by a concentrated effort by central banks around the world to pump almost $300 billion of extra funds into the financial system to improve liquidity.

While the rally will be welcomed by investors, it is not cause for celebration. Conditions on Wall Street remain precarious and there is almost certainly more bad news to come over the coming weeks.