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World stocks mostly rally on Citigroup report

Global stock markets mostly rebounded Monday on the back of a report that the US government was poised to take a 25-40 percent stake in troubled banking giant Citigroup.

Equities had plunged before the weekend as investors fretted over the struggling financial sector and a spreading economic downturn, analysts said.

Hong Kong jumped 3.8 percent higher, tracking a rally on the Shanghai bourse, dealers said.

And in early morning European trade, London gained 1.28 percent, Frankfurt won 1.83 percent and Paris soared 2.01 percent.

On the downside, Tokyo sank to a near four-month low as the failure of a Japanese money-lender and the poor health of US banks depressed sentiment.

"It looked as though markets would begin this week in the red but sentiment turned quickly following a press report that the US government could take a stake of as much as 40 percent in Citigroup," said Calyon analyst Mitul Kotecha.

The Wall Street Journal, citing unnamed people familiar with the situation, said US President Barack Obama's administration was in talks that could boost its Citigroup holding from 7.8 percent in return for fresh capital.

London shares were also lifted by weekend reports that Royal Bank of Scotland (RBS) would axe 20,000 jobs worldwide and sell off various assets this Thursday when it is due to post a record 28-billion-pound loss for 2008.

The Sunday Telegraph said RBS, which is about 70 percent state-owned, would split in two so that some 300 billion pounds of assets can be ring-fenced in a "bad bank" subsidiary.

In morning trade, RBS shares surged 16.58 percent to 22.50 pence, while Barclays and Lloyds Banking Group added 9.35 percent and 6.75 percent to stand at 104.10 pence and 60.10 pence respectively.

British banks were also in favour ahead of a widely-expected announcement that state-owned group Northern Rock will lend an additional 14 billion pounds to struggling homebuyers in the next two years.

"Equity markets are in for something of a defining week, not least amongst the banks, where a series of government measures are expected to be announced," said Matt Buckland, dealer at spead-betting firm CMC Markets.

"RBS will report those shocking full-year results and there's also speculation that across the Atlantic the Fed will extend its stake in Citigroup."

He added: "General consensus, however, seems to be one of pessimism and the distressed state of the global economy doesn't seem as if it is about to change quickly."

The Wall Street Journal reported Sunday that a substantial portion of the 45 billion dollars in preferred shares held by the US government would be converted into common stock.

The government has already obtained a 7.8-percent stake in the bank in return for pumping capital into Citigroup.

In October, the US Treasury poured 125 billion dollars into eight financial giants including 25 billion dollars for Citigroup, in exchange for preferred shares and warrants to buy stock.

"There are expectations that ... this template might be followed across the sector," added NCB analyst Bernard McAlinden.

"Asian financials benefited from the associated prospect of greater stability in the global financial system, although the bankruptcy of Japanese small business lender SFCG and rumours that Toshiba will raise new equity funding were negative."

In Japan's largest bankruptcy this year, corporate money-lender SFCG went under with debts of more than 3.6 billion dollars, spooking investors.

Tokyo's benchmark Nikkei-225 index fell 0.54 percent to 7,376.16, the lowest closing level since October 27.

Meanwhile over the weekend, the heads of Europe's largest economies agreed on the need for greater regulation of financial markets and to double IMF funding to avoid a repeat of the global economic crisis.

The leaders of Britain, France, Germany, Italy, Spain and the Netherlands met on Sunday in Berlin to hammer out a joint European stance for the Group of 20 meeting of developed and developing countries in London on April 2.

But Barclays Capital analyst David Woo said the absence of more specific plans to tackle the financial crisis could weigh on markets.

"The lack of policy initiatives from European officials following the G20 meeting over the weekend could affect sentiment," Woo warned.