Global stock markets rebound after plunge on bailout failure

LONDON (AFP) - Bargain-hunting helped lift the London, Paris and Hong Kong stock markets on Tuesday after investors worldwide had dumped shares following the unexpected rejection of a US financial bailout package.

Dexia became the latest European bank to need a state bailout with Belgium, France and Luxembourg pumping 6.4 billion euros (9.2 billion dollars) into the group so that the financial crisis would not claim another victim.

Most Asian indices closed sharply lower Tuesday -- with Tokyo hitting a three-year low -- after a record plunge on Wall Street overnight as US lawmakers shot down a 700-billion-dollar bailout of financial institutions.

"While we may not be thundering higher in Europe, we are not seeing the huge losses that were predicted," said Tom Hougaard, chief market strategist at City Index in London.

"This is a boost for confidence and has led to some... bargain hunting."

The surprise rejection by the House of Representatives on Monday of the 700-billion-dollar bailout package raised fears of a deepening of the financial turmoil that has rocked global markets and brought down some of the world's top banks.

Overnight, the Dow Jones Industrial Average sunk 777.68 points or 6.98 percent to close at 10,365.45, its biggest single-day point decline ever.

The slide eclipsed a 684-point drop on September 17, 2001, when the markets reopened following the September 11 terror attacks.

Treasury Secretary Henry Paulson warned US lawmakers they had to act fast.

"The failure of Congress to approve on Monday the Paulson plan was not in the script. As we have seen, the markets, particularly equities, have not taken it too well," said Standard Chartered chief economist Gerard Lyons.

Tokyo ended down 4.1 percent Tuesday, Sydney dropped 4.3 percent and Taipei shed 3.55 percent. Hong Kong shares closed 0.8 percent higher after falling more than six percent at one point.

In Europe, London was up 0.22 percent in late morning deals after falling by three percent shortly after the open. Paris gained 0.21 percent while Frankfurt was down 0.75 percent.

As the shockwaves from the ongoing financial crisis reverberated around the globe, Russian stock market trading was halted by regulators before the open, but began later.

The rescue of Dexia was agreed during crunch talks through the night after shares in the Belgian-French banking group plummeted by nearly 30 percent on Monday.

"Our ambition was to have very strong political involvement in order to send a signal to the markets," Belgian Prime Minister Yves Leterme told journalists.

Shares in Dexia, which have lost 51 percent of their value since the beginning of the year, surged 19.94 percent to 8.48 euros after a trading suspension was lifted late Tuesday morning.

It was another ugly day for markets in Asia where investors sought shelter in havens such as bonds and gold, despite calls from policymakers for calm.

Hiroichi Nishi, equities chief at Nikko Cordial Securities in Tokyo, said he had been shocked by the rejection of the package by Congress.

"The market is exploring where the bottom is now," he said, adding that all eyes were on whether Congress will vote on the rescue plan again or the White House will come up with new measures.

Japan's economic ministers voiced hope the United States would take action to halt the Wall Street meltdown.

The rejection "has a significant impact on not only the US economy but the world economy," Kaoru Yosano, the minister for economic and fiscal policy, told reporters.

Japan's central bank injected 3.0 trillion yen (28.8 billion dollars) into the Tokyo money market, the 10th straight business day it has pumped cash into the domestic financial system to try to keep credit flowing.

There was speculation the world's top central banks may choose coordinated interest rate cuts to try to prevent credit flows drying up.

The euro was under pressure after the rescue of several European banks deepened worries about the region's banking sector.