Markets pull back after big gains

Investors cash in gains after two strong days as the US says it will buy stakes in banks.

    The US government is buying stakes in banks such as Morgan Stanley [AFP]

    The Asian markets appeared to be taking their cue from Wall Street, which closed Tuesday's session slightly down after its record rally on Monday.

    The Dow Jones industrial average closed down about 76 points, or around one per cent, a day after its 936-point jump.

    Investors appeared to be cashing in profits after Monday's surge and Tuesday morning's 400-point opening jump.

    US bank plan

    The market easing came as the US president unveiled a plan on Tuesday to inject $250bn of the government's $700bn bailout plan into financial institutions.

    George Bush also said the US government would temporarily guarantee all non-interest bearing transaction accounts, providing some relief for small businesses.

    IN DEPTH


    How the financial bubble burst

    Q&A: The US financial meltdown

    Reacting to the financial crisis

    Wall Street gripped by uncertainty

    It will also temporarily guarantee most new debt issued by insured banks and the Federal Reserve will take steps to become the "buyer of last resort for commercial paper".

    "These measures are not intended to take over the free market, but to preserve it," Bush said of the government intervention that many economists regard as contrary to the principles of free-market capitalism.

    Nine banks have agreed to join the government programme, including Citigroup, Goldman Sachs, Morgan Stanley and Bank of America.

    Banks signing up will have to agree to limits on executive pay and other benefits, Henry Paulson, the US treasury secretary, said.

    Other banks will have an option to accept the programme, in which the government gets "senior preferred shares" which the treasury says will not give it voting rights.

    "Today's actions are not what we ever wanted to do," Paulson said, delivering his comments alongside Ben Bernanke, the Federal Reserve chairman, and Sheila Blair, the head of the government's Federal Deposit Insurance Corp.

    "But today's actions are what we must do to restore confidence to our financial system.

    "Government owning a stake in any private US company is objectionable to most Americans - me included - yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.

    "When financing isn't available, consumers and businesses shrink their spending, which leads to businesses cutting jobs and even closing up shop."

    Al Jazeera's John Terret explained that the plan marked a change in strategy for the US bailout.

    Instead of putting all the money into buying illiquid assets held by banks and other companies, the US government was going to do what Eurozone and the British governments had done: take direct stakes in banks.

    Our correspondent added that there would be considerably less risk-taking after the government takes a stake in the banks.

    SOURCE: Al Jazeera and agencies


    YOU MIGHT ALSO LIKE

    The woman who cleans up after 'lonely deaths' in Japan

    The woman who cleans up after 'lonely deaths' in Japan

    When somebody dies lonely and alone, Miyu Kojima steps in to clean their home and organise the mementos of their life.

    Putin and the 'triumph of Christianity' in Russia

    Putin and the 'triumph of Christianity' in Russia

    The rise of the Orthodox Church in Russia appears unstoppable, write filmmakers Glen Ellis and Viktoryia Kolchyna who went to investigate the close ties between the church and Putin.

    The chill effect: Is India's media running scared?

    The chill effect: Is India's media running scared?

    Much of India's media spurns a scoop about the son of PM Modi's right-hand man. Plus, NFL as platform for race politics.