Governments to buy bank stakes; stocks soar

By Eddie Evans

NEW YORK (Reuters) - Governments around the world bet hundreds of billions of dollars to rescue failing banks on Monday, sending world stocks soaring and giving Wall Street its biggest one-day gain ever.

The U.S. government is set to buy $250 billion in equity stakes in banks, a source briefed on the situation said, after Britain, Germany, France and other European countries pledged more than 1 trillion euros ($1.36 trillion) for bank guarantees and equity stakes.

U.S. regulators would announce details of the U.S. plan at 8:30 a.m. on Tuesday, the Treasury Department said.

The Dow Jones industrial average and the S&P 500 index raced to an 11 percent gain, their biggest ever, after recording their worst week in history last week amid panic over collapsing banks and fears that major economies were headed toward recession.

Stocks worldwide added more than $1.7 trillion in value on Monday, based on a record 9.3 percent gain in the MSCI world equity index.

"Sometime last week it seemed like we faced Armageddon, so to have a coordinated plan on stabilizing banks is huge progress," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

Treasury Secretary Henry Paulson met with top Wall Street bankers on Monday, agreeing to spend $250 billion on equity stakes and a three-year guarantee of bank-to-bank lending, the source said.

This was an about-face from a previous U.S. focus on buying bad debt from banks, after world finance ministers coalesced around a British proposal at weekend meetings in Washington.  Continued...