US stocks rebound on mechanism to buy bad debts

NEW YORK: Stocks rallied handsomely at the Wall Street as the Bush administration started pushing for a proposal that would create a mechanism to buy bad debts from financial institutions at deep discount.
    
The stocks witnessed their best day in six years when the blue chip Dow Jones industrial index rose by 410.03 points or 3.86 per cent to 11,019.69 yesterday after falling more than 800 points earlier this week.
    
The US administration and the Congress aides were working on a plan to calm the financial markets, which some analysts say could run into more than trillion dollars, though there was no official estimate.
    
The officials and aides were expected to aim a compromise, which would allow the Congress to pass the legislation by the end of next week, before it adjourns.     

The aim, analysts say, is achievable because Republicans and Democrats do not want to be seen as holdouts to bailing out the financial institutions with presidential elections around the corner.
    
The legislation would allow the government to spend federal money in an effort to stabilise the financial markets.
    
But Democrats were said to be seeking to cash in on the government woes by pushing their own proposals for another round of economic stimulus for the people as also relief for house owners facing foreclosures.

"What we are working on now is an approach to deal with systemic risks and stresses in our capital markets. And we talked about a comprehensive approach that would require a legislation to deal with the illiquid assets on financial institutions' balance sheets," the New York Times quoted Treasury Secretary Henry M. Paulson Jr as saying.
    
Thursday's rally came after four days of turmoil during which Lehman Brothers declared bankruptcy, Merrill Lynch sold itself and government agreed for a 85 billion dollars bailout for insurance giant American Insurance Group.
    
The new plan being considered would override the current crisis through a case-by-case approach.
    
The Standard and Poor's 500 index rose 50.12 points or 4.33 per cent to 1,206.51 and technology stocks heavy Nasdaq Composite Index gained 100.25 point or 4.78 per cent to 2,199.10.
    
Reports also suggested that the government might be considering providing federal insurance for investors in the money market mutual funds on the lines it provides for bank deposits.
    
It could help to stem outflow of funds as nervous investors start taking their investment out during a crisis. The Wall Street Journal said there is 3.4 trillion dollars in money markets funds outstanding.
    
The markets also got some impetus from reports that the United States Securities and Exchange Commission is set to impose a temporary ban on short-selling but it was unclear how wide spectrum it would cover.
    
Short-selling is a technique that investors use to profit from falling stock prices.

The New York Times said Federal Reserve's plan, announced early on Thursday, to shore up confidence by providing 180 billion dollars to financial markets through lending programmes of European Central and central banks of Canada, Japan, Britain and Switzerland, failed to relieve tension and another 100 billion dollar had to be injected just to keep the benchmark federal funds rate at its target of two per cent.
    
That banks around the world remained too frightened to lend to each other, much less to customers, forced Paulson and Fed Chairman Ben S Bernanke to "think the unthinkable," committing taxpayers money to buy hundreds of billions of dollars in distressed assets from struggling institution, the paper said.
    
Analysts said there was once again demands for stricter government oversight as the current situation is the result of deregulation.
    
Media reports said the lawmakers were still awaiting specific proposals from the Bush administration which was opposed to bailout but then had no choice as fear gripped the financial markets.