BUSINESS
11/30/2011 08:30 EST | Updated 11/30/2011 10:04 EST

Bank Of Canada, Central Banks Launch Coordinated Response To Global Debt Crisis

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UPDATE: North American stock markets racked up strong gains after the Bank of Canada and other major central banks announced moves to provide added support to the global financial system.

The S&P/TSX composite index surged 240.48 points to 11,972.98.

The central banks are making it cheaper for banks to get U.S. dollar liquidity when they need it, starting next Monday. They are also taking steps to ensure banks can get ready money in any currency if market conditions warrant.

The possibility that one or more European governments might default on debt has raised fears of a shock to the global financial system that would lead to severe losses for banks and a contraction in lending.

The Canadian dollar jumped 1.47 cents to 98.53 cents US.

The Dow Jones industrials ran ahead 273.22 points to 11,828.85, the Nasdaq composite index gained 69.63 points to 2,585.14 and the S&P 500 index rose 28.31 points to 1,223.5.

TORONTO - North American stock markets headed for strong gains at the open after the Bank of Canada and other major central banks announced moves to provide added support to the global financial system.

Canada’s central bank is joining the Bank of England, the Bank of Japan, the European Central Bank, the U.S. Federal Reserve and the Swiss National Bank "to enhance their capacity to provide liquidity support to the global financial system."

The central banks are making it cheaper for banks to get U.S. dollar liquidity when they need it, starting next Monday. They are also taking steps to ensure banks can get ready money in any currency if market conditions warrant.

The Canadian dollar surged a full US cent to 98.06 cents US following the announcement.

U.S. futures also took off with the Dow Jones industrial futures ahead 233 points to 11,798, the Nasdaq futures gained 51 points to 2,263.5 and the S&P 500 futures rose 27.5 points to 1,224.

The reassurance from major central banks further enhanced positive sentiment arising from moves by China to ease lending and encourage growth.

China's central bank announced that the amount of money China’s commercial lenders must hold in reserve will be cut by 0.5 per cent of their deposits, effective Dec. 5. It was the first easing of monetary policy in three years.

Lending has been tightened as Beijing dealt with unacceptably high levels for inflation, especially for food.

But analysts have expected China to loosen lending controls after inflation eased to 5.5 per cent in October from a three-year high and a surge in housing prices leveled off.

"Clearly China is concerned about the fallout from the crisis in Europe and slowing global demand," said BMO Capital Markets senior economist Jennifer Lee.

China has been a rare bright spot for the global economy since the financial crisis of 2008. Its strong growth has been particularly helpful for the resource heavy TSX as strong demand has boosted demand for commodities such as oil and metals.

The move by China to reduce bank reserve levels helped counter disappointment from Europe after the region’s finance ministers failed to announce radical new measures to deal with the crippling debt crisis afflicting the 17-nation eurozone.

A decision on how to forge a closer fiscal union between the 17 eurozone countries will have to wait until the leaders’ summit next week.

Stock markets had risen this week on hopes that intense bond market pressure would finally force the eurozone into quicker and more robust action.

Sentiment was further boosted by strong U.S. consumer confidence figures on Tuesday which raised hopes that the world’s largest economy is faring better than expected.

A raft of economic data over the rest of the week will be closely eyed, particularly Friday’s nonfarm payrolls figures.

Commodity prices also ran up smartly with the January crude contract on the New York Mercantile Exchange up $1.39 to US$101.18 a barrel.

Metal prices also advanced sharply with the March copper contract ahead eight cents to US$3.47 a pound while the February gold contract was ahead $18.20 to US$1,737.10 an ounce.

European bourses were also stronger as London's FTSE 100 gained 1.03 per cent, Frankfurt's DAX was up 1.71 per cent and the Paris CAC 40 jumped 3.25 per cent.

Earlier, in Asia, Japan’s Nikkei 225 index dropped 0.5 per cent, South Korea’s Kospi dropped 0.5 per cent, Hong Kong’s Hang Seng dipped 1.5 per cent and Australia’s S&P/ASX 200 settled 0.4 per cent higher.

Mainland Chinese shares plummeted, with the benchmark Shanghai Composite Index falling 3.3 per cent while the Shenzhen Composite Index dropped four per cent.

In corporate news, TMX Group (TSX:X) says the Commissioner of Competition has "serious concerns" about the likely competitive effects of Maple Group’s proposed plan to buy the owner of the Toronto Stock Exchange. TMX Group says the concerns are about competition in equities trading and clearing and settlement services in Canada.