World stock and commodity markets were buoyed yesterday by China's announcement of a massive 4-trillion-yuan (US$586 billion) plan to stimulate its economy.

China's action comes on top of more than US$4 trillion in government pledges around the world for bank bailouts, credit guarantees and fiscal spending to contain the damage from the worst financial turmoil in decades.

China's Shanghai stock market jumped 7.27 percent while Tokyo soared 5.81 percent, Hong Kong gained 3.5 percent and Sydney rose 1.4 percent. The news also sparked rallies on European stock markets.

But the optimism on Wall Street did not last long, as market participants realized that while China's stimulus plan is a positive sign that governments around the world are working to fix the global economy, the stimulus itself will likely have only a limited effect in the United States.

Oil prices increased about 6 percent, gold rose 2.5 percent and London copper jumped 8.5 percent. Agriculture futures and other commodities also rose yesterday.

China said on Sunday it will loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand.

The 4 trillion yuan will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure and transportation.

In a report to clients, Hong Kong-based economist Wang Tao of UBS Investment Research said the Chinese measures cover a wide range of areas, the clear focus being on government-financed or mandated investment and construction.

The UBS report said an "aggressive fiscal stimulus" was "necessary to jump start the economy," adding that increasing bank lending was "critical to sustain corporate investment needs."

In Brazil's Sao Paulo, European Central Bank head Jean-Claude Trichet was quoted as saying that China "is certainly going in the right direction."

China's current account surplus was signaling "room for maneuvering" precisely to foster domestic demand, he said.

Meanwhile, investment bank Dresdner Kleinwort analyst Valentin Marinov said that markets seem to have digested a lot of bad news already, so that measures like China's stimulus plan "could prop up the bounce in sentiment."

But analysts also warned that the global shock is quite strong and that the package is unlikely to reverse the Chinese economic deceleration -- it will only slow its pace.

The UBS report said growth of China's estimated gross domestic product (GDP) was likely to slow to 7.5 percent next year, down from 9 percent in the third quarter of this year.

Morgan Stanley Research in Hong Kong also said it had lowered its GDP growth forecast for China from 8.2 percent to 7.5 percent.

However, speaking in Sao Paulo during a Group of 20 finance ministers and central bank governors meeting, Chinese central bank governor Zhou Xiaochuan predicted an 8-9 percent growth for China next year, saying the steady growth of the Chinese economy will help global financial markets return to normal.