Storm in emerging markets subsides

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The storm that has been shaking emerging markets and threatened the dollar seemed to have subsided yesterday, helped by President Clinton's determination to support the Mexican government's efforts to restore confidence in the economy, and by the appointment of a new prime minister in Italy.

Other markets from East Asia to Latin America and southern Europe shared the mood of confidence. The Spanish Finance Minister, Pedro Solbes, said the peseta crisis was over and the French Finance Minister, Edmond Alphandery, said the European monetary system had shown its robustness.

The Hong Kong market rebounded sharply from Friday's falls and the Hang Seng index rose 251.9 to 7,504.24, a rise of 3.5 per cent, although turnover was modest and the Hong Kong Monetary Authority was again supporting the currency for the third trading day in a row. Shares on the Singapore and Malaysian market rose, although the Korean market registered falls.

Shares in Milan continued the strong recovery and both the main indices rose 4-5 per cent. Shares in Madrid rose more than 1 per cent. Malo de Marina, director general of the Bank of Spain, blamed the need for high interest rates on the strength of worldoutput growth and competition for funds from eastern Europe.

The lira and peseta both rallied against the mark.