Shares rise as confidence returns

Stocks markets in Europe and Asia have forged higher, as investors bet that state action to strengthen the banking system will ease the credit crisis.

London's FTSE 100 index rose 4% in early trade, while Japan's Nikkei stock index posted a record 14% gain.

The US is set to unveil details of a plan to take stakes in banks, following steps by the UK and European leaders.

President George W Bush will make a statement about the bank plan shortly before US markets open.

In morning trade, the FTSE 100 was up 174.53 points at 4,431.43. Bank shares led the gains, with Barclays up 12%.

In France the Cac 40 was up 4.55%, or 160.67 points, at 3,692.17, while in Germany the Dax index climbed 3.67%, or 185.7 points, to 5,248.15.

Rebound

The gains came after the US Dow Jones index jumped 11% on Monday as investors welcomed fresh moves to deal with the worldwide financial crisis.

In Japan, the Nikkei 225 index ended up 14.2% at 9,447.57 points - its biggest one-day gain to date - as it caught up with gains elsewhere after a public holiday on Monday.

Hong Kong's Hang Seng index ended up 520.4 points, or 3.2%, at 16,832.56. South Korea's index finished the day 6.14% higher.

In India, the benchmark Sensex was up 499.42 points, or 4.42%, to 11,808.51 in early trade.

"There's relief that banks probably won't go bankrupt thanks to the capital injection plans," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"But after rebounding to some extent, we will inevitably enter a phase of thinking about how the steps will actually impact the global economy."

Japan said it was considering pumping taxpayers' money into regional banks to make sure small firms can get loans.

Australia's main share index ended the day up 3.7% after Australian Prime Minister Kevin Rudd announced a 10.4bn Australian dollar ($7.3bn) economic stimulus package.

It will allow for one-off payments to the country's low-wage earners and pensioners and follows earlier announcements of guarantees of bank deposits for three years.

Rescue plans

The US government is expected to announce a $250bn (£143bn) bank rescue plan later, echoing steps taken by the UK and other European countries.

In return for injecting cash, the US will hold stakes in major banks including Goldman Sachs and Morgan Stanley.

The money will come from the $700bn bail-out package approved by US lawmakers earlier this month.

Unlike the UK plan, all US banks will be expected to take part in the scheme, Ralph Silva, a banking analyst at Tower Group, told BBC News.

The US move follows similar steps taken by the UK government, which on Monday said it would inject up to £37bn of taxpayers cash into Royal Bank of Scotland, Lloyds TSB and HBOS.

Likewise, European governments have said they are allocating more than 1 trillion euros to protect the continent's banks through guarantees and other emergency measures.

BBC business editor Robert Peston said the US and eurozone plans were variations on the template launched a week ago by the UK government despite reservations expressed by other leaders.

"If HM Treasury were the corporate finance department of one of those battered investment banks that are now being rescued, it would be collecting a very fat fee," he said.