HONG KONG – Asian and European stock markets advanced Monday, as investors digested reports the U.S. government might expand its stake in troubled banking giant Citigroup to ease the financial crisis.
Worries that major Western banks like Citigroup Inc. and Bank of America Corp might have to be nationalized because of mounting bad debts sent global markets sharply lower last week.
But investors seemed relieved, at least for now, to have some clarity about the fate of Citigroup after the Wall Street Journal said late Sunday the company is negotiating with authorities to increase the U.S. government's stake in the teetering lender to as much as 40 percent.
Executives would prefer to keep the government's stake closer to 25 percent, according to the Journal, which cited people familiar with the situation. The talks arose after Citigroup made the proposal to regulators.
The Obama administration has not indicated whether it would back the plan, the Journal said. Just last week, Obama officials voiced support for keeping the banking system private as widespread talk about nationalization led investors to unload shares in Citigroup and Bank of America.
The news was unlikely to give stocks extended support, analysts said. Should the U.S. end up taking greater ownership, however, the move could help restore long-term confidence in the hard hit financial sector, raising prospects of a faster recovery in the world economy.
"People are taking it as a positive sign," said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong. "It shows the government will not allow a major bank to fail again. They've learned their lesson with Lehman Brothers that the ramifications are so great, sometimes no amount of money can rebuild confidence."
As markets opened in Europe, Britain's FTSE 100 rose 1.1 percent, Germany's DAX added 1.7 percent and France's CAC-40 was up 1.5 percent.
Earlier in the day, Hong Kong's Hang Seng closed up 475.93 points, or 3.8 percent, at 13,175.10, and South Korea's Kospi was up 33.60, or 3.2 percent, at 1099.55 as the country's currency, the won, recovered some after plummeting against the dollar last week.
In mainland China, the Shanghai benchmark added almost 2 percent amid expectations of further government measures to help the real estate sector. Markets in Taiwan, Singapore, Indonesia, Thailand and the Philippines also edged higher.
In Japan, the Nikkei 225 stock average recouped some of its losses to end down just 40.22 points, 0.5 percent, at 7,376.16 as the dollar gained against the yen.
The market was pressured partly by the collapse of Japanese bank SFCG Co., a major high-interest lender focusing on small business. The firm filed for bankruptcy protection with $338 billion ($3.6 billion) in liabilities.
Australian and New Zealand shares also fell.
U.S. futures were higher on the Citigroup report, suggesting Wall Street would recover at the open. Dow futures rose 118 points, or 1.6 percent, to 7,470 and Standard & Poor's 500 index futures were up 13.1 points, or 1.7 percent, at 782.60.
Selected banks in Asia were buoyed by news about Citigroup. KB Financial Group Inc., the holding company for top South Korean lender Kookmin Bank, advanced 5.3 percent. HSBC, its shares pummeled in recent days, added almost 1 percent in Hong Kong.
Citigroup and other banking heavyweights in the U.S., Britain and other countries have already received hundreds of billions of dollars in government aid in hopes of saving the financial system from collapse.
While providing a short-term of jolt of optimism, the measures have failed to put to rest fears that more institutions could follow in the footsteps of Lehman Brothers, which declared bankruptcy in September, without governments assuming full or partial ownership.
Earlier this month, President Barack Obama's financial rescue plan met with a lukewarm reception from investors concerned the measures were vague or didn't go far enough to recapitalize the banks. This week, investors are expecting more details on Obama's program.
Last Friday, relentless financial and economic worries sent the Dow industrials down 100.28 points, or 1.3 percent, to 7,365.67. On Thursday, the Dow broke through its Nov. 20 low of 7,552.29, and closed at its lowest level since Oct. 9, 2002.
The S&P500 index fell 8.89, or 1.1 percent, to 770.05.
Oil prices were higher in Asian trade, with light, sweet crude for April delivery up 28 cents at $40.31 a barrel. The contract edged down 15 cents to settle at $40.03 Friday.
In currencies, the dollar rose to 94.34 yen from 93.32 yen, while the euro strengthened to $1.2869 from $1.2825.