Markets rally as G20 seals $1.1 trillion deal

Fri Apr 3, 2009 4:16am EDT
By David Ljunggren and Lesley Wroughton
LONDON (Reuters) - World leaders clinched a $1.1 trillion deal on Thursday to combat the worst economic crisis since the Great Depression and said financial rules would be tightened to stop it happening again.
U.S. President Barack Obama declared it a "turning point" for the world economy, even though he had won no promises for more government spending to combat a deepening world recession.
French President Nicolas Sarkozy celebrated the waning of the Anglo-Saxon model of lightly regulated capitalism, which many blame for excess that have triggered the crisis.
World stocks rallied on bold action that will help finance emerging markets, though economists cautioned against euphoria.
"We have agreed on a series of unprecedented steps to restore growth and prevent a crisis like this from happening again," Obama told a news conference.
"We've also rejected the protectionism that could deepen this crisis."
G20 leaders from the largest developed and emerging economies ticked off a raft of actions on politically sensitive topics -- -- new rules on bonuses, publishing a blacklist of tax havens that could lead to sanctions, imposing oversight on large hedge funds and on credit rating agencies. The tax havens marked a victory for France and Germany.
Australian Prime Minister Kevin Rudd hailed the actions. "Today's agreement begins to crack down on the cowboys in financial markets that have brought global markets undone."
Markets, desperate for good news when the global economy is shrinking for the first time since World War Two, reacted positively to imposing headline of $1.1 trillion that boosts financing through the International Monetary Fund and for trade. Much will be directed to emerging markets increasingly sucked into the global economic turmoil. Its size was unexpected.
In addition British Prime Minister Gordon Brown, the summit host, said governments already have pledged $5 trillion of public stimulus by the end of next year, even before taking into account their commitments to do whatever may be needed that came from the London summit.
But missing from the deal were specifics on the financial rules, how banks would unload their toxic assets, let alone any clarity on the actual size of stimulus already in the pipeline. Brown did not say how the $5 trillion squared with an estimate he gave just a day earlier of about half that amount. Indeed, Obama spoke of around $2 trillion rather than five.
By day's end the index of top European shares was up 4.9 percent. On Wall Street, the Standard and Poor's index was up 3.73 percent.