THE United States pledged yesterday to pump US$250 billion (S$365 billion) into its banks, following similar action in Europe.
But data showed the threat of recession has not been banished even if a financial-sector meltdown has.
In Europe, major economies showed signs of flagging output and falling business confidence. Smaller countries were also suffering. Iceland sought to save its economy at loan talks in Moscow, while its stock market plunged 76 per cent.
Under the US Treasury plan, the government will buy preferred shares in qualifying financial institutions, with stakes in each limited to US$25 billion.
US Treasury Secretary Henry Paulson said nine banks described as "healthy institutions" had agreed to accept government stakes for the good of the US economy - a state intervention unthinkable before a crisis widely compared to the great crash of the 1930s.
"Government owning a stake in any private US company is objectionable to most Americans, me included," said Mr Paulson.
"Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable." President George W. Bush called it an essential step to ensure the viability of America's banking system. He insisted the government's steps would be limited and temporary.
Federal Reserve chairman Ben Bernanke promised continued action to stabilise financial markets. "We will not stand down until we have achieved our goals of repairing and reforming our financial system and thereby restoring prosperity to our economy," he said in a statement.
The Treasury will buy stakes in Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley and Bank of New York Mellon Corp, two sources said.
Media reports said State Street Corp and Merrill Lynch would also receive a capital injection. Similar moves in Europe helped restore confidence among investors on Monday.
London, Berlin, Paris and others pledged more than 1 trillion (S$2 trillion) in direct capital injections for banks and to underwrite lending between banks that has all but frozen, choking off funds that drive business and industry.
Japan joined the global push, saying it could inject public funds into regional banks to ensure small firms can get cash.
Even the Gulf, with its oil revenues, is acting. The United Arab Emirates will pump 70 billion dirhams (S$28 billion) of emergency funding into its banking sector.
"We see light at the end of the tunnel, but we are not there yet," European Commission president Jose Manuel Barroso told a news conference.
Stock markets worldwide gave a thumbs-up to the government action. European shares rose nearly 6 per cent and US stock futures had the Dow Jones opening sharply higher.
"Investors are peeping out of their bomb shelters," said currency strategist Sean Callow at Westpac.
Some relief was evident in money markets.
Libor rates for overnight dollars were fixed at 2.18125 per cent, down from 2.46875 on Monday, while the interbank cost of borrowing three-month dollars had its biggest fall since March and three-month euros charted the largest fall this year.
