NEW YORK - INTERBANK lending emerged from deep freeze and Fed chairman Ben Bernanke gave his blessing to a second US government stimulus package on Monday, providing hope the world's financial crisis may be easing.

The three-month Libor rate fell more than one-third of a percentage point, its biggest one-day drop in nine months in one sign that banks may have the confidence to lend to each other again, crucial to reactivating the world economy.

The chairman of the US Federal Reserve told Congress on Monday that another wave of government spending may be needed as the economy limps through what could be an extended period of subpar growth.

'With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate,' Fed chief Ben Bernanke said in his first endorsement of a second US stimulus package.

US stocks gained further on the prospect of another government boost to taxpayers similar to one this summer when the Treasury sent out $100 billion (S$149 billion) of checks to jump-start the economy. The Dow and the S&P rose more than 2 percent each.

European stocks meanwhile fared well as banks there prepared to make use of state rescue packages.

ING grabbed a 10 billion euro Dutch cash injection and Sweden joined countries offering lifelines to their banks.

'Bernanke appears to have restored some confidence in markets by advocating another fiscal stimulus, although markets may also have been influenced by the stronger-than-expected US leading economic indicator,' said Mr Stephen Malyon, chief currency strategist at Scotia Capital in Toronto.

The comparative optimism follows weeks of market-rattling weekend announcements since Lehman Brothers collapsed in mid-September.

The world's financial stewards have used previous weekends to announce emergency measures to combat the worst financial crisis since the 1930s Great Depression.

Governments have promised $3.3 trillion (S$4.9 trillion) - about equal to the economic output of Germany - to guarantee bank deposits and bank-to-bank lending, and in some cases have taken stakes in banks with toxic assets.

'There's a perception that the crisis squeeze could be beginning to abate thanks to measures from global authorities over the past few weeks,' said Mr Philip Shaw, chief economist at Investec.

Chinese growth slows
Pre-market stirrings came from Asia, where South Korea released a $130 billion (S$192.2 billion) rescue package, and China on Monday reported that economic growth eased in the third quarter and forecast a further slowing in the fourth quarter.

One bellwether Chinese company, conglomerate CITIC Pacific , became the latest victim of global turmoil, warning of potential foreign exchange losses of nearly $2 billion and accusing its senior finance director of trading without approval.

Other major economies also showed signs of a slowdown.

The Bundesbank said Germany's economy probably stagnated in the third quarter. In India, the central bank unexpectedly cut its key lending rate for the first time in more than four years.

Oil braked its fall on Monday, rising nearly $2 on expectations Opec may reduce output. The price of crude oil has sunk more than 50 per cent since climbing to a record high above $147 per barrel in July.

One indicator of how the crisis is affecting the real economy will come later on Monday when American Express, the fourth-largest US credit card issuer, reports earnings, probably before the closing bell.

Since American Express has a well-to-do clientele, investors were looking for indications that higher income people were cutting back on spending or falling behind on payments.

On the political front, Democrat Barack Obama's campaign received a double shot of good news on Sunday when he reported raising a record $150 million in September and former Secretary of State Colin Powell endorsed Mr Obama over fellow Republican John McCain. -- THOMSON REUTERS

Read also:
2nd stimulus for US?
Sweden presents $295b plan
Germany finalises bailout plan