New York: US and European officials proposed strict new financial rules on Thursday to stabilize the economy and curb the type of risk-taking that nearly wrecked the banking sector and set off a global recession.
US Treasury Secretary Tim Geithner called for a powerful systemic risk regulator with the authority to probe deep into non-bank financial enterprises, such as hedge funds and private equity firms.
“Comprehensive reform” was needed, “not modest repairs at the margin,” Geithner told a congressional panel.
European Central Bank Governing Council member Nout Wellink earlier asked for hedge funds to be directly supervised, saying the sector has been a “blind spot.”
While authorities sought to rewrite financial regulations, the United States released revised fourth-quarter GDP data showing the economy shrank at its fastest pace since 1982 in the fourth quarter and corporate profits plunged a record $120.1 billion.
The headline figure of a 6.3% contraction in the October-December period was slightly better than the consensus forecast of negative 6.5% in a Reuters survey of economists.
That helped Wall Street stocks, which also received a boost from better-than-expected results from consumer electronics retailer Best Buy, consumer foods business ConAgra and soft drinks company Dr Pepper Snapple.
The tech-heavy Nasdaq ended 3.8% higher to turn positive for 2009 and the Dow Jones industrials added 2.2%, taking its gains over the past 13 sessions to 21%.
European shares ended flat and Japan’s Nikkei index closed up 1.8% earlier in the global trading day.
“We are seeing some optimism, we are seeing some return of risk appetite, both of which we have not seen for a while,” said Mike Wittner, Societe Generale’s global head of oil research.
Atlanta Federal Reserve President Dennis Lockhart warned, however, that one month of improved data does not constitute an economic recovery and the recession in the United States will last for at least a few more months.
He was referring to data on Wednesday that showed new orders for long-lasting US-made goods rose in February for the first time in seven months and new home sales rebounded.
Minneapolis Federal Reserve Bank President Gary Stern said the US recession could end around mid-year.
Reuters polls of more than 100 equity market strategists in a dozen countries forecast most world stock indexes were expected to rise modestly in 2009, but some will mark no gain following a brutal year that saw most bourses hammered 40% lower or more.
Data from European economies on Thursday was less encouraging, with UK retail sales down almost five times more than forecast, Ireland’s economy shrinking 7.5% at the end of last year and surveys showing depressed consumer morale in Germany, Italy and France.
Low demand for British gilts and US Treasuries on Wednesday fed concern about how, and at what cost, governments could finance their respective stimulus plans, but both received greater demand on Thursday.
Britain saw strong demand at a gilt sale - the bid-to-cover ratio was 2.72 for the 2022 bond - after the previous day’s failed auction for 40-year paper.
Demand for $24 billion worth of 7-year US Treasury notes produced a 2.52 bid-to-cover ratio on Thursday, up slightly from a 2-to-1 ratio in a $34 billion auction of 5-year notes on Wednesday.
In China, central bank governor Zhou Xiaochuan said the momentum of the slowdown in the world’s third-largest economy had been arrested and that leading indicators were pointing to the first signs of improvement.
There was also encouragement in Asia from Hutchison Whampoa, billionaire Li Ka-shing’s ports-to-telecoms flagship, whose shares climbed after it said second-half earnings nearly quadrupled to around $900 million.