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ECB head urges US financial bailout approval

  Europe’s top banker pressed the US Congress to approve a $700 billion bailout of the US financial industry on Friday and urged European states to unite in tackling a crisis now shaking the world economy.

 

The plan, unpopular among many in the US angered by the notion of bailing out banks whose high-risk ventures ended in a home-loan crisis hitting the poorest in the population, is due to go before the House of Representatives on Friday. The same deputies, facing elections in November, shocked world markets on Monday by rejecting a previous draft.

The mood of alarm infecting European and Asian capitals as well as world financial markets as the vote approaches was unmistakable. “(US Treasury) Secretary (Henry) Paulson’s plan obviously must be passed,” European Central Bank President Jean-Claude Trichet told Europe 1 Radio. “It must be. It is necessary.”

In Switzerland, UBS AG, hardest hit among European banks by its exposure to subprime-related holdings, said it will cut 2,000 investment banking jobs -- on top of the 4,100 positions cut in the past year. Worries grew that even if Washington agrees on the massive rescue package, it will not be enough to resolve deeper-rooted weakness as new data showed that a US recession is nearing and European Central Bank President Jean-Claude Trichet said Europe’s economy was worsening.

Key European leaders gather on Saturday in Paris after French President Nicolas Sarkozy summoned an emergency meeting to discuss Europe’s response to the crisis. Ireland took unilateral action to shore up its banks this week by guaranteeing deposits, a move some EU partners said could break competition rules and threatened the unity necessary to ensure an ordered approach to the turmoil ahead.

US payrolls data due to be released at 1:30 p.m. British time on Friday were forecast to show that businesses cut jobs for the ninth straight month in September, with 100,000 non-farm jobs expected to be lost, against a drop of 84,000 in August, according to the median in a Reuters poll of economists.

Stocks in Tokyo dropped 1.9% to their lowest close in three years, and elsewhere in Asia they were off by 0.85% despite optimism among US House Democratic leaders that legislation to mop up illiquid bank assets would win approval. In Europe, stock markets opened slightly weaker. “Investors expect the US House to approve the bailout, but even if that happens, it would have a neutral impact on the market as its effectiveness is still questionable,” said Takahito Murai, general manager of equities at Nozomi Securities in Tokyo.

 

BLEAK PICTURE

New economic data painted a bleak picture. US factory orders tumbled in August and the number of workers seeking jobless benefits rose in the latest week to a seven-year high. Wall Street endured a dismal day on Thursday, as stocks dropped 4% and a seizing up in money markets drove a rally in the dollar. Latin American stocks and currencies tumbled on worries about the credit crisis and economic slowdown. “The bottom line is quite simple: the markets will rally on passage and sell off on any further delay,” he said.

Backers of the rescue plan, including US Treasury Secretary Henry Paulson, called on members of the House of Representatives who voted down a similar measure on Monday to change their vote. At the centre of the storm, credit markets remained under deep stress. With banks fearful of lending to each other, direct bank borrowing from the US Federal Reserve shot to a record high, averaging a staggering $368 billion per day. (Reuters)