Monday, May 7, 2010 - Stocks racked up their biggest one-day gain in over a year, and the euro halted its slide, on Monday, as an agreement on a bold $1 trillion emergency rescue package from the EU leaders quelled fears a new credit crisis would derail European economies. This helped to send markets soaring, worldwide, in a gambit that may ultimately be seen as the moment Europe truly became a union. Picture: Euro-Sign
The bailout fund approved by European leaders in the early hours of Monday drove the S&P 500 to its highest opening jump on record as indexes rushed back into positive territory for the year after last week's sharp slide.
The sweeping cash injection was greeted with euphoria on Wall Street, where stocks rocketed to their biggest gain in more than a year.
Photo: Angela Merckel - German Chancellor
Monday's gain ended a harrowing four-day string of losses for equities that had pushed major indexes down 7 percent to 9 percent. U.S. regulators are still seeking the cause of a dizzying 9 percent intraday drop on Thursday.
Banks ranked among the top beneficiaries as the rescue deal opened up short-term lending markets and calmed fears of a possible Greek debt default. The S&P Financial index (.GSPF) climbed 5.6 percent and was the top percentage gainer among S&P sectors. Bank of America Corp (BAC.N) jumped 6.9 percent to $17.30.
The package of standby funds and loan guarantees available to euro-zone governments shut out of credit markets is on the scale of the U.S. government's $700 billion Troubled Asset Relief Program in 2008 designed to stave off the credit crisis and calm swooning markets.
After frantic talks lasting into the early hours of Monday, European officials agreed the 16 euro nations would put up $572 billion (euro440 billion) in new loans and $78 billion (euro60 billion) under an existing lending program. The International Monetary Fund will pump in another $325 billion (euro250 billion), for a total package of nearly $1 trillion.
Photo: Jean-Claude Trichet – Head of the ECB, Giorgios Papakonstantinou – Greek Finance Minister and Jean-Claude Juncker – Chairman of the EuroGroup.
The European Commission is to raise the money in capital markets, using guarantees from member governments, and lend it to crisis-stricken countries so they can pay their bills.
"The market is telling us that this was the right move," said Marc Pado, U.S. market strategist at Cantor Fitzgerald, in San Francisco. "The size of the bullet that we dodged here is huge."
The CBOE VIX volatility index (.VIX), known as Wall Street's fear gauge, fell 29.6 percent -- the largest percentage drop in its history -- to end at 28.84 after leaping to its highest level in more than a year on Friday.
However, many questions were left unanswered, such as how the money would be dispensed and on what terms.
Still, one other fly in the ointment, is that the package did not resolve the basic dysfunction at the heart of Europe's monetary union: Governments can still spend recklessly and saddle their partners with the bill.
Some analysts cautioned, however, that longer-term questions remained whether euro-zone nations saddled with high debt loads would be able to manage their finances.
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