By Daniel Trotta
NEW YORK (Reuters) - The United States ushered in a new era in banking on Tuesday with plans to take ownership stakes in major financial institutions totaling as much as $250 billion, an incursion into the private sector that was called a regrettable last resort.
The U.S. government followed European powers that agreed to recapitalize their banks a day earlier, triggering a global stock market rebound that continued on Tuesday with major stock indexes all surging.
Japan's Nikkei climbed more than 14 percent -- the biggest one-day gain in its history -- and European shares rose nearly 6 percent.
The latest measures are intended to stimulate interbank lending and the commercial paper markets, whose stagnation may have already pushed the U.S. economy into recession.
Europe's major economies showed signs of flagging output and falling business confidence, and experts warned of dangers ahead as U.S. companies report shrinking third-quarter earnings.
"This is an essential short-term measure to ensure the viability of America's banking system," U.S. President George W. Bush said in a televised address.
"These measures are not intended to take over the free market but to preserve it," Bush said.
Under a U.S. Treasury plan, the government will buy preferred shares in qualifying financial institutions, with stakes in each limited to $25 billion.
U.S. Treasury Secretary Henry Paulson said nine banks that he described as "healthy institutions" had agreed to accept government stakes for the good of the U.S. economy -- a government intervention unthinkable before the credit crisis.
"Government owning a stake in any private U.S. company is objectionable to most Americans, me included," Paulson said . "Yet the alternative of leaving businesses and consumers without access to financing is to totally unacceptable."
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 capital injections.
Similar moves in Europe helped restore confidence among investors on Monday.
Britain, Germany, France and others pledged more than 1 trillion euros ($1.36 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 make sure small firms can get cash.
(Reporting by Reuters bureaus around the world; Editing by Steve Orlofsky)
