NEW YORK, (Reuters) – U.S. and European officials proposed strict new financial rules yesterday to stabilize the economy and curb the type of risk-taking that nearly wrecked the banking sector and set off a global recession.
U.S. Treasury Secretary Tim Geithner called for a powerful systemic risk regulator with the authority to probe deep into non-bank financial enterprises, such as hedge funds and private equity firms.
“Comprehensive reform” was needed, “not modest repairs at the margin,” Geithner told a congressional panel.
European Central Bank Governing Council member Nout Wellink earlier asked for hedge funds to be directly supervised, saying the sector has been a “blind spot.”
While authorities sought to rewrite financial regulations, the United States released revised fourth-quarter GDP data showing the economy shrank at its fastest pace since 1982 in the fourth quarter and corporate profits plunged a record $120.1 billion.
The headline figure of a 6.3 percent contraction in the October-December period was slightly better than the consensus forecast of negative 6.5 percent in a Reuters survey of economists.
That helped Wall Street stocks, which also received a boost from better-than-expected results from consumer electronics retailer Best Buy, consumer foods business ConAgra and soft drinks company Dr Pepper Snapple.
The tech-heavy Nasdaq ended 3.8 percent higher to turn positive for 2009 and the Dow Jones industrials added 2.2 percent, taking its gains over the past 13 sessions to 21 percent.
European shares ended flat and Japan’s Nikkei index closed up 1.8 percent earlier in the global trading day.
“We are seeing some optimism, we are seeing some return of risk appetite, both of which we have not seen for a while,” said Mike Wittner, Societe Generale’s global head of oil research.
Atlanta Federal Reserve President Dennis Lockhart warned, however, that one month of improved data does not constitute an economic recovery and the recession in the United States will last for at least a few more months.
He was referring to data on Wednesday that showed new orders for long-lasting U.S.-made goods rose in February for the first time in seven months and new home sales rebounded.