NEW YORK-US stock indices closed with broad gains yesterday as international leaders scramble to save a week-old plan to prevent a financial crisis in Europe. Strong corporate earnings and a bump up in hiring by private companies also helped send markets higher after a steep two-day drop. The Dow Jones industrial average gained 178.08 points, or 1.5 per cent, to close at 11,836.04. The Dow lost 573 points the previous two days after the brokerage MF Global collapsed and Greece's prime minister surprised markets and his own government with a call to put unpopular austerity measures to a public vote.
For much of the summer, investors were worried that the US economy was on the verge of another recession. But signs that consumers are continuing to spend and that manufacturing expanded in September have put many of those concerns to rest. The Federal Reserve said yesterday the economy was likely to expand modestly over the next two years. But Fed Chairman Ben Bernanke cautioned that the pace of economic growth will likely be "frustratingly slow." The Fed said it would not take any more steps to help the economy for now, but it left open the possibility of more steps later. The fear of a wider financial crisis eased somewhat as the euro rose against the dollar and Treasury prices slipped. A revolt in George Papandreou's government could scuttle the Greek referendum. That would bring relief to investors by keeping the bailout plan intact.
Papandreou faces a confidence vote on Friday. Should voters reject the austerity plan, it could lead to a messy default on Greece's debt that would send shock waves through Europe's financial system and likely cause massive losses for banks that hold Greek bonds. Only last week European leaders agreed to a wide-ranging plan to shore up European banks and heavily indebted countries like Greece and Italy. Papandreou travelled to France Wednesday and is scheduled to meet with leaders of the Group of 20 nations Thursday and Friday. France and Germany are expected to insist that a bailout plan reached last Thursday is the best way to solve Europe's debt problems and avoid a financial crisis.
AP
