Stocks uncertain over Citi rescue

London - European stock markets rebounded on Monday but Asian equities stayed in the red as investors worldwide reacted differently to a massive US government bailout of stricken American bank Citigroup.

London jumped 4.61% in late morning trade, while Frankfurt won 3.79% and Paris gained 4.49% nearing the half-way mark.

Britain's Labour government was to unveil on Monday a bold strategy of slashing taxes and boosting spending under an economic stimulus package designed to combat looming recession.

Across the Atlantic, "uncertainty is hovering once again over the US financial system," said Calyon analyst Daragh Maher.

The US government has vowed to protect struggling banking giant Citigroup against "unusually large losses" and give it $20bn from a massive financial rescue package approved by Congress.

The announcement came shortly before midnight on Sunday, after the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation reached an agreement with Citigroup to provide a package of guarantees to the bank saddled with staggering losses.

"Once again, the market is faced with a weekend hangover where it has to decide whether it should feel relief that something has been done, or renewed unease that something had to be done in the first place," said Maher.

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The Hong Kong stock market closed down 1.6% on Monday, even though US federal regulators also agreed to back up to $306bn worth of Citigroup assets.

Tokyo was shut for a public holiday, while Seoul ended Monday down 3.3% and Shanghai shed 3.67%.

"Investors need proper guidance on the news and are waiting to see the reaction in the US markets," Phillip Asset Management fund manager Y.K. Chan told Dow Jones Newswires.

"For now, they just can't gauge how positive this development is."

Wall Street was to reopen at 14:30 GMT. On Friday, US shares had staged a strong late rally as traders cheered reports that New York Federal Reserve chief Timothy Geithner would be named the next Treasury secretary by president-elect Barack Obama.

The Dow Jones Industrial Average vaulted 6.54%, ending the week on a positive note after two days of brutal selling that erased some 10% from the main indexes.

The tech-heavy Nasdaq composite climbed 5.18% on Friday and the Standard & Poor's 500 index jumped 6.32%.

Meanwhile, Obama announced plans on Saturday to create 2.5 million new jobs in a bid to shore up the US economy before his inauguration.

The Washington Post reported on Monday that Obama and his Democratic allies in Congress are preparing plans for a second massive economic stimulus programme that could total as much as $700bn over the next two years.

- AFP