Ftse soars after loans boost

 

Investors dived into the markets today after six central banks including the Bank of England announced a coordinated bid to boost lending to households and businesses.

The FTSE 100 Index was nearly 3% higher after the banks, including the European Central Bank (ECB) and US Federal Reserve, agreed to lower interest rates on US dollar loans, which should encourage lending between banks and help stave off economic stagnation.

The move comes amid fears of a looming second credit crunch as the unresolved eurozone debt crisis continues to pile pressure on the banking sector.

Shares in Britain's biggest banks were boosted by the announcement, with Lloyds Banking Group up 8%, Barclays ahead 7% and Royal Bank of Scotland rising 5%.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: "The world's central banks have shown the European area the meaning of decisive and coordinated action."

The announcement, which will make it easier for banks and financial institutions to access dollars, primary currency for funding, came as an additional boost to the London market.

The FTSE 100 was already ahead amid reports that financial leaders had agreed to increase the eurozone bailout fund and would use it to underwrite 20% to 30% of Government bond purchases made by private investors.

The deal should drive down borrowing costs for countries such as Italy that have recently been forced to pay nearly 8% on bond markets, and help reduce fears of a eurozone collapse.

But markets leapt ahead after the central banks made their announcement, with Germany's Dax and the CAC-40 in France both up more than 4%.

In a statement, the Bank of England said: "The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity."

Tom Levinson, analyst at ING Bank, said the move was encouraging as it targets a "key area of concern", the inability of banks to access funds in the stressed marketplace.

But Mr Levinson warned sceptics would be concerned such measures were being taken in the absence of a concrete resolution to the eurozone debt crisis.

He said: "Unless the eurozone comes up with a convincing answer soon we would expect downward euro pressure to resume, with central banks forced to get ever more creative as their toolboxes are emptied."

PA

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