LONDON (MarketWatch) -- U.S. stock futures and world stock markets rallied on Monday, as agreements reached in Paris and Washington D.C. to bolster the banking system restored some confidence after a week in which stocks dropped by nearly 20% in the U.S. and by more around the globe.
S&P 500 futures rose 40.3 points to 931.30 and Nasdaq 100 futures climbed 47.75 poitns to 1,330.20.
In London, the FTSE 100 rose 3.6% and in Hong Kong, the Hang Seng jumped 9.5%.
Oil futures jumped $4.29 to $81.99 a barrel. The euro rallied, climbing 1.7% to $1.3622.
U.S. stocks closed mostly lower on Friday to end what some called a slow-motion crash as the credit and money markets locked up. On Friday, the Dow Jones Industrial Average finished 128 points lower, the S&P 500 fell 10.7 points, while the Nasdaq Composite rose 4.4 points.
Treasury Secretary Henry Paulson laid out more details of his radical plans to buy equity in banks Friday, while the Group of Seven finance ministers and central bank governors urged its members to take whatever steps are necessary to restore market confidence.
The Financial Accounting Standards Board gave more guidance on mark-to-market rules for banks but didn't repeal them altogether.
In Paris, meanwhile, leaders of the 15 euro-zone countries agreed Sunday to an action plan that will guarantee loans between banks through 2009 and allow governments to buy stock in distressed financial companies.
On Monday, the European Central Bank, the Bank of England and the Swiss National Bank said they would lend unlimited amounts of dollars to banks. Australia has guaranteed wholesale funding for banks. Britain said it would inject as much as $63 billion into three banks, and Germany is scheduled to make its own announcement around 9 a.m. Eastern.
International Monetary Fund Dominique Managing Director Strauss-Kahn said the moves by the euro-zone leaders in Paris were "exactly the type of action" that is needed to reassure very jittery markets.
"With substantial injections of public capital now assured on an accelerated timetable, we might still avoid the scenario of a rapid decline into deflation, generalized bankruptcies across the banking sector, and a very deep, protracted recession. All else being equal, this is bad for (very expensive) government bonds and good for (cheap) equities," said strategists at Societe Generale.
Still, doubts remain.
"The counterparty risk problem remains entrenched in the market with the result that banks are swallowing official interest rate cuts to widen margins. Whilst this may help the recapitalization process, it does little to help the rest of the economy, which will only serve to hurt banks further in the medium term," said Peter Dixon, a strategist at Commerzbank.
Meanwhile, the recent slump in financial markets and auto sales have prompted General Motors to hold merger talks with Chrysler, according to a report in The Wall Street Journal. Chrysler is 80% held by Cerberus Capital Management and 20% held by Daimler .
In pre-market trade, GM shares rose 17%.
Morgan Stanley rose 27% as Mitsubishi UFJ's planned $9 billion investment into the troubled investment bank went through.
Spain's Banco Santander (STD:
13.03, -0.02, -0.1%) said it's in talks to buy Sovereign Bancorp . The Wall Street Journal reported the deal may be done around Friday's closing price of $3.81 a share.
There aren't any economic indicators due for release due to the Columbus Day holiday.
