The FTSE-100 index of leading UK shares and its European counterparts yesterday rallied in anticipation that the US House of Representatives would pass a multi-billion-dollar bank bailout package.
The FTSE-100 index of leading UK shares and its European counterparts yesterday rallied in anticipation that the US House of Representatives would pass a multi-billion-dollar bank bailout package - but when final approval arrived, the reaction from American investors came in the form of a big sell-off.
As cheers echoed through the House chamber after the number of "aye" votes crossed the threshold needed for the passage of the $700bn rescue, the see-sawing Dow Jones Industrial Average surged 300 points, but then lost it all and ended the session by plunging 157.47 points. The sell-off appeared to reflect lingering uncertainty over whether the rescue would work.
On Monday, US stocks plummeted 778 points in their biggest one-day fall since 1987 after the House of Representatives failed to approve the original $700bn rescue package, although shares clawed back more than half the losses in the subsequent session.
However, the Wall Street bell last night sounded the finale for the worst weekly sell-off in six years, with the Dow ending the week at 10,392.37.
The decline bodes ill for the FTSE-100 on Monday morning. It finished up 2.3% yesterday, the CAC-40 in Paris rose nearly 3%, and Frankfurt's DAX was up 2.4%.
None the less, the rescue bill, which passed 263 to 171, authorises the US government to buy troubled assets - mostly in the form of soured sub-prime mortgages - from financial institutions, which remain at the heart of the credit crisis and the global tumult.
The bill's passage through Congress came after substantial amendments and a marked increase in support from Republican ranks in the wake of its defeat earlier in the week.
The bill had already been approved by the Senate on Wednesday, but under the US constitution, both Houses must agree before a bill can move to the desk of the president.
Shortly after 2pm yesterday, Washington time, President George W Bush signed the unprecedented bailout into law. The past two weeks have witnessed extraordinary volatility in global stock markets as investors flailed back and forth amid panic that further financial crises will follow the string of failures that included Lehman Brothers' filing for bankruptcy and the £85bn bailout of the insurance behemoth AIG.
On this side of the Atlantic, the last week was rocked by news that Bradford & Bingley will be nationalised and the Spanish bank Santander will buy all of Bradford & Bingley's savings business, as well as half-a-dozen near-collapses in Europe.
AIG chief executive Edward Libby yesterday said: "What the Fed has provided us is very generous."
However, evidence of whether the rescue package will ease the jammed-up credit markets may not emerge for days.
Investors yesterday may also have been mulling the 159,000 decline in US non-farm jobs in September - the worst retrenchment in five years - reinforcing mounting evidence of rapid deterioration in the US economy, which could force the Federal Reserve to cut interest rate
