By Eddie Evans
NEW YORK (Reuters) - The U.S. government agreed on Monday to take $25 billion stakes in several big banks in a bid to shore up the banking system and arrest the financial crisis, sources familiar with the situation said.
The move follows pledges by the governments of Britain, Germany, France and other European countries of more than 1 trillion euros ($1.36 trillion) to bolster their own banks.
U.S. officials will announce details of the U.S. plan at 8:30 a.m. on Tuesday, the Treasury Department said.
As Asian markets opened on Tuesday, Japan's Nikkei average soared 9 percent.
That followed the biggest one-day gain ever in the Dow Jones industrial average and the S&P 500 index, both up 11 percent on Monday. Wall Street recorded its worst week in history last week amid panic over collapsing banks and fears that major economies were headed toward recession.
Stocks worldwide added more than $1.7 trillion in value on Monday, based on a record 9.3 percent gain in the MSCI world equity index.
"Sometime last week it seemed like we faced Armageddon, so to have a coordinated plan on stabilizing banks is huge progress," Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said on Monday.
After talks with Wall Street bankers on Monday, Treasury Secretary Henry Paulson agreed to spend $250 billion on equity stakes in U.S. banks and to a three-year guarantee of bank-to-bank lending, sources familiar with the meeting said.
The government would take $25 billion in preferred stock in Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley and Bank of New York, the sources said.
All except Bank of America would have to raise $10 billion in matching capital to qualify, a source said.
This was an about-face from a previous U.S. focus on buying bad debt from banks, after world finance ministers coalesced around a British proposal at weekend meetings in Washington.
Britain's bank plan called for 37 billion pounds ($64 billion) of taxpayers' cash to bail out three major banks in a move that would likely make the government their main shareholder.
Germany, France, Italy and other European governments also announced rescue packages totaling hundreds of billions of dollars.
Also on Monday, investment bank Morgan Stanley reached a financing deal with Mitsubishi UFJ Financial Group Inc (MUFG), possibly with U.S. government support. Morgan shares soared 87 percent, after losing 58 percent last week.
And Banco Santander said it would acquire the remaining 75 percent stake in Sovereign Bancorp Inc it does not already own, as the euro zone's biggest bank hunted for bargains in the beaten-down financial sector.
In addition to the bank bailouts, the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank said they would lend commercial banks as much U.S. dollar liquidity they needed.
That had an instant impact on bank-to-bank lending rates, which eased, but there was still no clear evidence of funds cascading from banks to companies.
U.S. bond markets were closed on Monday for the Columbus Day holiday.
The euro and sterling gained strength on the European plans.
Oil rose more than $4 to $82 a barrel.
BROWN PROFILE RISES
British Prime Minister Gordon Brown called on world leaders to create a new financial architecture to replace the current system, which was set up at a conference in Bretton Woods, New Hampshire, in 1944.
"Sometimes it does take a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed," Brown said in a speech at the London offices of Thomson Reuters.
Iceland -- forced over the past week to take over three big banks, shut down its stock market and abandon attempts to defend its currency -- officially requested financing from the International Monetary Fund, an IMF official said.
"I'm slightly less terrified today than I was on Friday," Princeton University economist Paul Krugman said after he was named the winner of the Nobel prize in economics on Monday. "We're going to have a recession and perhaps a prolonged one but perhaps not a collapse.
Japan said on Monday it was considering whether to guarantee all bank deposits, while the central bank said it might join further global efforts to boost dollar funding to strained money markets.
The two men vying to succeed U.S. President George W. Bush after the November 4 election were formulating their own plans.
Democrat Barack Obama, leading in public opinion polls, proposed a 90-day moratorium on home foreclosures and other measures aimed at creating jobs.
Republican John McCain was also considering rolling out a new economic package.
($1=.5786 Pound)
($1=.7287 Euro)
(Reporting by Reuters bureaus around the world; Editing by Gary Hill)
