In the wake of the carnage in last week’s markets, European countries pledged to inject capital into ailing banks and guarantee some forms of bank debt, a step analysts said was critical to restoring lending between banks and easing a crisis of confidence.
Europe’s action throws the spotlight back to the United States, where officials said Treasury Secretary Henry M. Paulson Jr. was studying the feasibility of backing up loans between banks here. Lending between banks is considered crucial to the smooth operation of the financial system and the broader economy, but it has slowed considerably because banks are concerned about being repaid should the other bank run into financial trouble.
The Treasury was not expected to announce anything before Monday, officials said. But the government was helping an American financial giant, Morgan Stanley, in its effort to salvage a $9 billion investment by a Japanese bank, Mitsubishi UFJ Financial.
The initial reaction of investors was positive, with stocks up in several Asian markets and stock futures in the United States — which are bets on the direction of the market before its opening — higher as well. The early signs, after one of the worst weeks ever for stock markets, are not a definitive shift in sentiment but were seen as a potential hope that the markets may at least stop their free fall.
“It’s going to take actions more than words at this time, given the extreme distress that the money markets are in and the extreme distress that the equity markets were in,” said Douglas Peta, a market strategist at J.& W. Seligman & Company. He predicted further drops in the stock and bond markets; the Dow Jones industrial average fell 18 percent last week.
But there were some significant steps. In Paris, European leaders agreed to a unified plan that would inject billions of euros into their banks and guarantee bank debt for periods up to five years. President Nicolas Sarkozy of France, who led the talks in the 18th-century Élysée Palace, said governments would announce concrete rescue plans tailored to their national circumstances on Monday simultaneously.
“We need concrete measures, we need unity,” Mr. Sarkozy declared. “That’s what we achieved today.”
Leaders of the 15 countries that use the euro did not put a price tag on any of their promises — contrary to Britain, where last week Prime Minister Gordon Brown announced $255 billion in government funds and other measures to stabilize its banks, or the United States, where a $700 billion bailout plan will now be used partly to infuse banks with fresh capital.
The United States is overhauling its rescue package, which had originally focused on buying distressed assets from banks. Mr. Paulson said on Friday the government would now take equity stakes in banks; the government’s role in the Morgan Stanley negotiations may be an early test of the Treasury’s retooled strategy.
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