Global markets rally as G-20 pledges $1.1 trillion recovery package

Stock markets across the world have rallied after world leaders reached a $1.1-trillion deal to tackle the global economic crisis at the G-20 summit.

• In New York, the Dow Jones rose 2.8 per cent, or 216.5 points, to 7,978 points.
• London's FTSE 100 index closed up 4.3 per cent at 4,124.97, Germany's DAX index gained 6.1 per cent while France's CAC 40 rose 5.4 per cent.
• Indian markets also took heart as the global efforts unveiled added to optimism that the worst might be over for the world economy.
• Bombay Stock Exchange Sensex rose to a five-month high to close at 10,346.83, up 446.84 points or 4.51 per cent from its previous close.
• Earlier, shares in Asia closed higher. Japan's Nikkei 225 index rose 4.4 per cent, while Hong Kong's Hang Seng gained 7 per cent.

Hopes that the global downturn might be easing also pushed oil prices up almost 10 per cent to above $50 a barrel.

World leaders yesterday agreed on an additional economic recovery package of $1.1 trillion to be made available to the world economy through the International Monetary Fund (IMF) and other institutions, and imposing new regulations for financial institutions to pull the world out of recession.

''The plan would not bring the economic crisis to an instant end, but "we've begun the process by which it will be solved," the British prime minister Gordon Brown said.

The six main points outlined yesterday in London include several measures to stimulate growth and kick-start global trade.

• Clamp down on tax havens.
• A global common approach in dealing with toxic assets that impair the ability of banks to lend, better accounting standards, and tighter rules for credit rating agencies.
• A $1.1 trillion package to supplement the $5 trillion stimulus to the global economy by individual countries. The $1.1 trillion will allow the IMF, the World Bank and others to increase lending to vulnerable countries. There will be a ten-fold increase to $250 billion in the IMF's facility allowing members to borrow from other countries' foreign currency reserves.
• More power for leading developing countries within the IMF and World Bank, to end the stranglehold of the US and Europe on their top jobs.
• $200 billion of trade finance over two years to help reverse the steepest decline in world trade since 1945, with cash from a range of public and private sources.
• A pledge that the fiscal stimulus, including the sale of gold by the IMF due to raise $6 billion, will give help to the poorest nations and create green jobs.

US president Barack Obama said that ''the patient had stabilised and was in good care'', claiming that, by any measure, the London summit was historic.

''It was historic because of the size and the scope of the challenge that we face and because of the timeliness and the magnitude of our response,'' he said.

The deal won praise from business leaders, as well as anti-poverty campaigners, but dismayed the green lobby with its lack of measures to combat climate change.

Some critics also pointed out that the summit failed to produce a co-ordinated plan to purge the global banking system of billions of dollars of toxic assets, and suggested that regulation of the financial industry should have gone further.

Brown said that the existing agreed fiscal stimulus will amount to $5 trillion by 2010, and the measures will raise world output by 4 per cent by the end of next year.

The G-20 leaders also agreed to treble the resources of the IMF to $700 billion from $250 billion. China agreed to provide $40 billion of the new loans given to the IMF, with more to come from Saudi Arabia.

Brown said: ''This is the day that the world came together, to fight back against the global recession. Not with words, but a plan for global recovery and for reform and with a clear timetable.''

French President Nicolas Sarkozy said the summit meant that the era of secrecy by banks was over; ''great progress'' had been made, he said, adding that the page had been turned on the economic model which had dominated since Bretton Woods in 1944 created the world's institutional framework.

''Since Bretton Woods, the world has been living on a financial model, the Anglo-Saxon model. It's not my place to criticise it, it has its advantages [but] clearly today a page has been turned,'' he said.

The German chancellor, Angela Merkel, said the deal was ''a very, very good, almost historic compromise''.