KUALA LUMPUR - THE world readied on Monday for a slew of bank bailouts worth hundreds of billions of dollars in an effort to staunch the credit rout that threatens to tip the global economy into recession.

That comes after Washington said last week it was working on ways to buy stakes in struggling banks, an about face for a country that has prided itself on its free markets and lack of state intervention.

'The weekend produced the hoped-for result, a broad assault on the main problem, undercapitalised banks,' said ING Bank economist Tim Condon.

'The Fed's liquidity creates a firewall against a cascade of bank deleveraging - think Great Depression.'

Risky assets from US stock futures to the Korean won which have been pummelled by the crisis that has engulfed the world financial system, rallied on Monday after world leaders agreed at the weekend to take coordinated action.

Asian stocks markets also gained, but so did the yen and gold - two gauges of risk aversion - highlighting investor caution.

Media reports said Britain's Barclays was trying to raise cash from private investors rather than rely on a state bailout. But Morgan Stanley, which recently went a similar route and secured a US$9 billion (S$13 billion) investment from Japan's Mitsubishi UFJ Financial Group, will have to renegotiate the deal after its share price plunged 58 per cent last week, according to a person familiar with the matter.

British Prime Minister Gordon Brown promised after a meeting of European leaders on Sunday that there would be 'worldwide action that will make people see that confidence in the banking system can be restored'.

France, Germany and Italy are also expected on Monday to announce how they will buy stakes in their ailing banks as the Euro zone economies sought to draw a line in the sand. The German bank rescue plan alone could be worth up to 400 billion euros (S$799 billion), according to media reports, and is being fast-tracked through the parliament in Berlin.

What world leaders are trying to avoid is a repeat of the situation where the likes of Lehman Brothers were allowed to go bust. Far from drawing a line between fundamentally sound and unsound institutions, it has frozen credit markets, the lifeblood of the financial system, as banks feared their counterparts could be the next to go down.

'Systemically important banks in Europe means all banks,' European Central Bank Executive Board Member Lorenzo Bini Smaghi said in Washington on Sunday.

Markets were looking for European leaders to match US promises to stem market panic.

Last week, the Standard & Poor's 500 index plunged more than 18 per cent last week, its worst-ever weekly fall. European stocks fell 22 per cent and Tokyo's Nikkei crashed 24 per cent.

'This is not a gift to banks but to help them function,' French President Nicolas Sarkozy said, mindful of the public opinion backlash in the United States when Washington pushed through a US$700 billion taxpayer-funded rescue plan for US banks stuck with unsellable debt tied to the housing slump.

'I believe that temporary nationalisation of banks in developed countries would have clear advantages: injecting much needed capital into banks, providing confidence to depositors, facilitating interbank lending, facilitating crucial lending to companies and households-which seems almost frozen,' said Dr Stephany Griffith-Jones, Executive Director of the Initiative for Policy Dialogue at New York's Columbia University. -- REUTERS