By David Chance
KUALA LUMPUR (Reuters) - The world readied on Monday for a slew of bank bailouts worth hundreds of billions of dollars in an effort to staunch the credit rout that threatens to tip the global economy into recession.
Britain is expected later on Monday to detail plans to inject about 45 billion pounds ($68.4 billion) into four top banks which could see the government becoming the biggest shareholder in Royal Bank of Scotland and lender HBOS.
That comes after Washington said it was working on ways to buy stakes in struggling banks, an about face for a country that has prided itself on its free markets and lack of state intervention.
Australia and New Zealand also guaranteed all bank deposits and Indonesia upped its guarantee to 2 billion rupiah ($203,000) while India pledged more liquidity to help financial markets.
"The weekend produced the hoped-for result, a broad assault on the main problem, undercapitalized banks," said ING Bank economist Tim Condon.
"The Fed's liquidity creates a firewall against a cascade of bank deleveraging - think Great Depression."
Risky assets from U.S. stock futures to the Korean won, which have been pummeled by the crisis that has engulfed the world financial system, rallied on Monday after world leaders agreed at the weekend to take coordinated action.
Asian stocks market also gained and the Australian dollar rallied against the yen and the dollar, perceived as a safe-haven, fell against the yen and the euro, while oil prices rallied from recent lows.
According to financial bookmakers, European stock markets were seen gaining around 5 percent at the open on the rescue plans outlined at the weekend.
Media reports said Britain's Barclays Plc was trying to raise cash from private investors rather than rely on a state bailout. But Morgan Stanley, which recently went a similar route and secured a $9 billion investment from Japan's Mitsubishi UFJ Financial Group, will have to renegotiate the deal after its share price plunged 58 percent last week, according to a person familiar with the matter.
British Prime Minister Gordon Brown promised after a meeting of European leaders on Sunday that there would be "worldwide action that will make people see that confidence in the banking system can be restored."
France, Germany and Italy are also expected on Monday to announce how they will buy stakes in their ailing banks as the Euro zone economies sought to draw a line in the sand.
The German bank rescue plan alone could be worth up to 400 billion euros ($539.4 billion), according to media reports, and is being fast-tracked through the parliament in Berlin.
What world leaders are trying to avoid is a repeat of the situation where the likes of Lehman Brothers were allowed to go bust. Far from drawing a line between fundamentally sound and unsound institutions, it has frozen credit markets, the lifeblood of the financial system, as banks feared their counterparty could be the next to go down.
"Systemically important banks in Europe means all banks," European Central Bank Executive Board Member Lorenzo Bini Smaghi said in Washington on Sunday.
Markets were looking for European leaders to match U.S. promises to stem market panic.
Last week, the Standard & Poor's 500 index plunged more than 18 percent last week, its worst-ever weekly fall. European stocks fell 22 percent and Tokyo's Nikkei crashed 24 percent.
"This is not a gift to banks but to help them function," French President Nicolas Sarkozy said, mindful of the public opinion backlash in the United States when Washington pushed through a $700 billion taxpayer-funded rescue plan for U.S. banks stuck with unsellable debt tied to the housing slump.
Mindful of the financial crisis that brought Asian's economic "tigers" to their knees a decade ago, Philippine President Gloria Macapagal Arroyo called on Monday for Asian nations to be consulted in reshaping the financial world.
A decade ago, Asia was prescribed International Monetary Fund and Washington medicine and forced to close banks and deregulate.
Now the region is watching the developed world pursue policies it was denied with a new sense of confidence, bolstered by hundreds of billions of dollars of foreign exchange reserves and with many of its nations now in the driving seat as the developed world scurries for finance.
"I am urging the developed countries or G7 to consider the interest of developing countries in their plan to prevent a worldwide economic meltdown," Arroyo said as she called for a meeting of Southeast Asian nations plus economic giants China and Japan as well as South Korea next week.
ACTION ACROSS THE BOARD
Portugal said it will offer a financing line worth 20 billion euros ($27.5 billion) to guarantee the liquidity of its banks.
The Norwegian government announced a plan to provide $57 billion in liquidity for commercial banks. Australia and New Zealand said they were working together to offer blanket bank deposit guarantees.
Indonesia upped its deposit cover to $203,000 on Monday to bolster confidence in banks
Gulf Arab states also took steps to boost confidence in the financial system, including a cut by Saudi Arabia of its benchmark repo rate and a vow by the United Arab Emirates to protect national banks and guarantee deposits.
(Reporting by Reuters bureaux; Writing by David Chance; Editing by Tomasz Janowski)
