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World Markets Like US Plan to Mop Up Toxic Bank Assets


World markets have responded positively to a public-private investment program designed to buy up hundreds of billions of dollars worth of questionable assets currently on the books of American banks.

U.S. Treasury Secretary Timothy Geithner outlined further details of the plan Monday, which would relieve banks of up to a trillion dollars worth of bad debts.

In Asia, the mood was upbeat as the planned purchases of troubled mortgages which lie at the very heart of the credit crisis in the United States had a positive effect on global markets.

In Tokyo, the Nikkei closed 3.4 percent higher on the day to reach a two-month high while shares in Hong Kong jumped 4.8 percent. In Europe, the same positive news from the U.S. Treasury department sent shares up.

While no one is talking in terms of recovery yet, the mood in trading centers such as London is starting to change.

Stephen Pope, the chief market strategist at the global financial services firm Cantor Fitzgerald says many traders feel the toxic asset rescue plan is important because it addresses the root cause of the credit squeeze.

"People sense that these plans, these rescue plans, will work otherwise the capitalist system falls apart and that is not going to happen. So, I think now you are beginning to find investors who are actually a bit overloaded with money on deposit earning zero percent, are starting to be a little bit more encouraged to go out and put a toe in the water and increase their risk profile," said Pope.

But even though the mood may be slightly shifting, Pope says any true recovery will take time, and during that period things like unemployment can worsen before they eventually turn around.

"The employment indexes are always a lagging indicator by around six months so if you start to see the stock market front-running up, say, from middle of the second quarter, then it probably means that at the turn of the year is when the general economic pattern begins to improve," Pope said.

The United States was under pressure to unveil the plan to deal with troubled assets before the April 2nd G-20 summit of leading industrialized nations takes place in London.

Although mentioned in broad terms last month, market players have been waiting to see the specific details before embracing the public-private program.


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