Markets rebound as the US senate prepares to resurrect bailout package: economy roundup

The Australian sharemarket has bounced strongly this morning as hope grow that the US government’s rescue package for the global financial system may yet be approved by US politicians.

The Australian sharemarket has rebounded strongly this morning as hope grows that the US government’s rescue package for the global financial system may yet be approved by US politicians.

After finishing yesterday 4.3% lower, the local sharemarket jumped 3.5% shortly after opening at 10:00AEST. The mood of Australian investors was buoyed by a solid night on Wall Street.

The Dow Jones Industrial average jumped 485 points in its best one-day rise in six years, wiping out more than half of its record 778-point drop on Monday. The Standard & Poor’s 500 Index jumped 58.35 points or 5.27%, while the technology-heavy Nasdaq Composite Index climbed 98.60 points or 4.97%.

Australia’s benchmark index, the S&P-ASX 200, had climbed 147.7 points or 3.2% to sit at 4748.2 points at 11:30 AEST.

BHP Billiton, which was sold off heavily yesterday, is up 5.8% in morning trade, while the big four banks have also enjoyed strong rises. Rollercoaster stock Babcock & Brown – which slumped around 17% yesterday – has jumped 14.7% today.

Investors on Wall Street and in Australia are betting on the US government’s $US700 billion rescue package being resurrected later this week and it seems their confidence has not been misplaced.

Reports out of Washington this morning indicate that the US senate has agreed to vote on a new version of the package tonight. The new package is believed to include a big increase in the amount of bank deposits protected by the US government’s insurance program –  that should help make the package more palatable to Congress representatives who are worried about appeasing taxpayers.

If, as expected, the Senate approves the new package, pressure on Congress to sign off on the plan when its meets on Thursday night will be intense.

President George W. Bush, Treasury Secretary Henry Paulson and John McCain and Barack Obama have all re-affirmed their support for the package.

Meanwhile, the Australian dollar has continued to slide on concerns about the credit crisis, with the local currency slipping below US80c to US79c in overnight trade.