US markets wary over rescue deal

The markets remain nervous

US shares have fallen sharply with investors cautious over whether the House of Representatives will back the revised bank rescue plan.

The House is due to discuss the scheme later, with a vote expected on Friday. The bill successfully passed through the US Senate on Wednesday.

On Wall Street, the Dow Jones index was down 263 points or 2.4% at 10,571, a slide dragging European shares lower.

The falls came as France said it would host a summit on the financial crisis.

The UK’s FTSE 100 closed was down 1.8% to 4,870.3 points while Germany’s Dax index shed 2.5% and France’s Cac 40 lost 2.3%.

Sentiment was further hit by glum economic data – showing that the number of people filing for new unemployment benefit claims rose to a seven-year high, while factory orders had seen a steeper-than-expected drop in August.

European talks

The office of French President Nicolas Sarkozy said the special meeting on Saturday would discuss a co-ordinated response to the financial turmoil amongst European members of the G8 ahead of a meeting of world finance leaders in Washington next week.

UK Prime Minister Gordon Brown is due to attend, together with German Chancellor Angela Merkel, Italian Prime Minister Silvio Berlusconi and European Central Bank President Jean-Claude Trichet.

Investors are still concerned about the efficiency of this rescue plan and how it can help the global economy Aric Au, Phillip Securities

But with just two days to go before the talks start, EU members are deeply divided, correspondent said.

France and Holland favor a European response to help banks hit by the credit crisis while Germany and Luxembourg believe a joint rescue plan is not necessary.

European leaders have denied speculation that they wanted to establish a unified 300bn euro ($418.4bn; £236bn) banking rescue deal along the same lines as the US plan.

The rescue idea was said to be being proposed by France, but Mr Sarkozy insisted that there were no such plans.

“I deny both the amount and the principle [of such a plan],” he said.

‘Essential’

In the US, a number of changes had to be made to the $700bn (£380bn) bail-out plan in order to help win approval in the Senate.

These include raising the government’s guarantee on savings from $100,000 to $250,000, tax breaks to help small businesses, expansion of child tax credit, and help for victims of recent hurricanes.

President George W Bush said that the package was “essential to the financial security of every American”.

However, economists said doubts remained about how effective the package would be.

“Investors are still concerned about the efficiency of this rescue plan and how it can help the global economy,” said Aric Au of Phillip Securities in Hong Kong.

McCain and Obama

US presidential hopefuls John McCain and Barack Obama, who both returned from the campaign trail for last night’s Senate debate, voted in favor of the rescue plan.

Senate majority leader Harry Reid, a Democrat, said he was happy with the result and praised both presidential candidates for voting.

“I think it shows that when we work together we can accomplish good things,” he said.

Mitch McConnell, leader of Republican senators, was also in jubilant mood.

“This was a measure that was much needed, to unfreeze the credit markets and get America’s economy working again,” he said.

Italy seals Libya colonial deal

Mr Berlusconi (left) and Col Gaddafi shook hands

Italian Prime Minister Silvio Berlusconi has signed an agreement to pay Libya $5bn as part of a deal to resolve colonial-era disputes.

Libyan leader Col Muammar Gaddafi said the settlement signed in the city of Benghazi opened the door to partnership between the two states.

Mr Berlusconi said the deal, which sees the money being released over 25 years, ended “40 years of misunderstanding”.

Libya was occupied by Italy in 1911 before becoming a colony in the 1930s.

The former Ottoman territory became an independent country in 1951.

This is the first African country to be compensated by a former colonial master.

The question is, she adds: will this latest move set precedents for other former African countries to follow suit?

Coastal motorway

Mr Berlusconi explained that $200m would be paid annually over the next 25 years through investments in infrastructure projects, the main one being a coastal motorway between the Egyptian and Tunisian borders.

The headless statue was displayed when the two leaders met

There will also be a colonial-era mine clearing project.

As a goodwill gesture, Italy also returned an ancient statue of Venus, the headless “Venus of Cyrene”, which had been taken to Rome in colonial times.

The settlement was a “complete and moral acknowledgement of the damage inflicted on Libya by Italy during the colonial era”, the Italian prime minister said.

“In this historic document, Italy apologises for its killing, destruction and repression against Libyans during the colonial rule,” Col Gaddafi said for his part.

The agreement was signed in the Benghazi palace which once housed the Italian colonial administration, Reuters news agency reports.

Rome and Tripoli have spent years arguing over compensation for the colonial period.

Mr Berlusconi’s one-day trip was his second since June when illegal immigration from Africa to Europe was the key issue of talks.

Italy has been swamped by thousands of African migrants trying to reach its shores by boat.

Libya has come in from the diplomatic cold since 2003 when it abandoned efforts to acquire weapons of mass destruction.

Next week, US Secretary of State Condoleezza Rice is scheduled to make the first high-ranking American visit to Libya since 1953.