LONDON — World stocks surged Monday as lower interbank lending rates fueled hopes that credit markets are returning to normal and Federal Reserve chairman Ben Bernanke gave his support to more fiscal stimulus in the U.S.
Markets in Asia, Europe and Latin America all rallied, inspired by the fall in interbank lending rates after governments and central banks in past weeks have cut interest rates while injecting huge sums of cash into battered banks and financial companies.
On Wall Street, the Dow industrials finished up 413.21 points, or 4.7 percent, to 9,265.43, while broader indexes logged similar gains.
Britain's FTSE 100 index of leading shares closed up 219.66 points, or 5.4 percent higher, at 4,282.67, while Germany's DAX was up 53.68 points, or 1.1 percent, higher at 4,835.01. The CAC-40 in France was 118.59 points, or 3.6 percent, stronger at 3,448.51.
Those gains follow the 3.6 percent advance on Japan's Nikkei 225 to 9,005.59 and the 5.3 percent jump in the Hang Seng index in Hong Kong to 15,323.01.
Brazil's Ibovespa index led gainers in Latin America, soaring 8.4 percent to 39,441, while Chile's IPSA rose 4.7 percent to 2,546. Mexico's IPC index finished up 2.3 percent to 20,786 and Colombia's IGBC gained 1.2 percent at 7,689. Argentina's Merval was the only laggard, slipping 3.3 percent to 1,176.
"What we are seeing is a gradual reduction in money market rates which goes a long way to restoring investor confidence," said Neil Mackinnon, chief economist at ECU Group.
The interbank lending rate for three-month dollar loans fell for the sixth day running Monday and by its biggest daily amount since January. It dropped 0.36 percent to 4.06 percent, while the three-month Euro Interbank Offered Rate, or Euribor, fell almost 0.05 percentage points to 5.00 percent.
Overnight, the Hong Kong interbank offered rate, known as Hibor, for three-month loans tumbled to 3.66 percent from 4.19 as the territory's de facto central bank pumped more money into the financial system.
Abnormally high interbank lending rates have been a sign of distress in credit markets and been the catalyst for the crisis in the financial markets over recent weeks. High interbank rates can choke off credit to businesses and individuals, hurting the economy.
The thawing of the credit markets has helped financial stocks across Europe, particularly in London, with Royal Bank of Scotland PLC closing up 23 percent, and HSBC and Barclays more than 5 percent and 7 percent respectively.
One of the most high-profile gainers in Europe Monday was Amsterdam-listed ING Groep NV after the Dutch government injected 10 billion euros ($13.4 billion) into the financial company over the weekend. Its shares were up 20 percent, almost recouping most of last Friday's losses.
Energy stocks in Europe, such as BP PLC, Royal Dutch Shell and Total SA, were also up as oil prices rose further Monday to near $74 a barrel at one stage on mounting talk that OPEC will cut production at the end of this week in an attempt to shore up prices that have fallen by 50 percent in three months.
The markets also seem to have taken comments from Fed chairman Bernanke in stride. Though Bernanke warned that the U.S. economy is likely to be "weak for several quarters, and with some risk of a protracted slowdown," he did indicate that he would support a new fiscal stimulus to prop up growth in the U.S.
Bernanke's remarks before the Budget Committee of the House of Representatives marked his first endorsement of another round of government stimulus. Democrats on Capitol Hill have been pushing for another stimulus plan, but the Bush administration has been cool to the idea as the federal budget deficit grows.
"Effectively, the Fed chairman is giving Congress a green light to go ahead with an additional fiscal stimulus package," said Brian Bethune, chief U.S. financial economist at Global Insight.
Even if Libor rates continue to decline, analysts say stock markets will not be out of the woods given the sharp economic slowdown likely to occur over the coming months, which will become more and more evident as companies report their latest earnings.
"We are going to go through this volatility for the next few weeks if not months though the volatility should be less marked," said Howard Wheeldon, senior strategist at BGC Partners.
Earlier in Asia, South Korea's Kospi climbed about 2.3 percent after the government's announcement Sunday to provide up to $100 billion to secure banks' maturing foreign currency debt and another $30 billion for the banks.
Mainland China shares, meanwhile, recovered early losses to edge higher in spite of new government figures showing the country's economic growth eased to 9 percent in the third quarter of this year _ its slowest in more than five years.
The reading, while still robust, fed into anxiety that deteriorating financial and economic conditions around the world were damaging Asian growth.
Investors, though, were relieved by lower third-quarter inflation data and pledges of fresh government intervention to support the economy. Shanghai's key index ended 2.25 percent higher at 1,974.01.
In Tokyo, shares moved higher amid hopes for better-than-expected corporate earnings, with. Panasonic Corp. up 8.9 percent after the Nikkei business daily reported that the company would beat its interim operating profit forecast by more than 20 billion yen ($197.3 million).
In currency trading, the 15-nation euro fell to $1.3323 in late afternoon trading in New York on Monday from $1.3439 late Friday. The British pound fell to $1.7121 from $1.7334, while the dollar edged higher to 101.88 Japanese yen from 101.75 late Friday.
Associated Press writers Jeremiah Marquez in Hong Kong, Elaine Kurtenbach in Shanghai, Kelly Olsen in Seoul, Jeannine Aversa in Washington, Tomoko A. Hosaka in Tokyo and Alan Clendenning in Sao Paulo, Brazil contributed to this report.