Fed's discount rate cut fails to buoy US stock market
Saturday, 18 August 2007
NEW YORK, Aug 17 (Agencies) : Stocks rose on Friday after the Federal Reserve unexpectedly cut the discount rate in a move to keep credit flowing, but market euphoria faded as investors questioned whether the Fed's action would be enough.
World markets had feared that the credit tightening, which began with the U.S. subprime mortgage market, would spread and lead to slower global economic growth.
Before the stock market opened, the U.S. central bank said it cut the discount rate by half a percentage point to 5.75 percent, sending world stock markets sharply higher.
But by midmorning major U.S. stock indexes had cut their gains in about half.
"There's still just as much of a risk that the market could be down another 5-10 percent three months from now," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
"I don't think we've solved all the credit market problems with this move from the Fed today. Are they going to get worse? We don't know. I don't think any one knows with certainty that things won't get worse than they are right now."
The Dow Jones industrial average (.DJI) was up 151.68 points, or 1.18 percent, at 12,997.46. The Standard & Poor's 500 Index (.SPX) was up 21.72 points, or 1.54 per cent, at 1,432.99. The Nasdaq Composite Index (.IXIC) was up 31.33 points, or 1.28 per cent, at 2,482.40 after earlier rising as high as 3 percent.
Major European indexes recovered substantially after the Fed's announcement from steep declines in earlier trading. Britain's FTSE 100 rose 3.43 per cent, Germany's DAX index rose 2.82 per cent, and France's CAC-40 rose 3.13 per cent.
In Asian trading, which closed before the Fed lowered the discount rate, Japan's Nikkei stock average plunged to close down 5.42 per cent as the yen continued its climb against the dollar.
The dollar briefly dipped below 112 yen for the first time in over a year, suggesting that some investors were taking their Japanese currency out of higher-yielding dollar assets. It later rebounded, though.
Earlier report from Tokyo adds, battered Asian stocks reeled from another huge sell off Friday with Tokyo plunging by the most in over seven years as panicky investors dumped shares to escape the snowballing credit crisis.
Heavy selling on Asia's largest bourse quickly spread across the entire region with major markets down more than five percent as investors scrambled to exit the market fearing further heavy losses.
Japanese share prices closed with a massive 5.42 per cent loss, suffering the biggest one-day point drop since April 2000.
Markets are being battered by fears of financial instability following troubles with risky US mortgages and a squeeze on credit that has prompted central banks to push money into the financial system.
The US Federal Reserve, for example, pumped $17 billion of reserves into the banking system on Thursday and said it was ready to undertake further operations as needed.
"The market is in a very bad state right now," said Fumiaki Nakanishi, head of market research at SMBC Friend Securities.
"Overseas investors are massively selling shares. The situation is very serious with no sign of things calming down," he said.
Stock markets around Asia plunged as investors remained extremely nervous that more bad news might emerge from US credit markets. European markets opened mixed Friday.
Hong Kong share prices were down 6.0 per cent in afternoon trade while Singapore tumbled more than 5.0 per cent as investors fretted that problems in the US mortgage sector could spark a full-blown credit crunch.
Investors fled "the crashing stock markets and headed to the safer bond market," said Akihiko Inoue, a strategist at Mizuho Investors Securities.
Seoul closed 3.1 percent lower after plunging nearly seven percent Thursday -- its biggest ever one-day point decline.
"It's hard to believe that all the skeletons are out of the closet," said Eric Betts, an equity strategist at Nomura Securities in Sydney where shares ended 0.70 per cent lower.
"Some of these (firms' problems) will only come to light if their lenders pull the plug on them or force them to come clean," he added.
For Asian markets the main worry is that foreign investment funds will be forced to further offload shares to cover losses in securities backed by US subprime mortgages to risky borrowers, or to stash funds in more stable bonds.
World markets had feared that the credit tightening, which began with the U.S. subprime mortgage market, would spread and lead to slower global economic growth.
Before the stock market opened, the U.S. central bank said it cut the discount rate by half a percentage point to 5.75 percent, sending world stock markets sharply higher.
But by midmorning major U.S. stock indexes had cut their gains in about half.
"There's still just as much of a risk that the market could be down another 5-10 percent three months from now," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
"I don't think we've solved all the credit market problems with this move from the Fed today. Are they going to get worse? We don't know. I don't think any one knows with certainty that things won't get worse than they are right now."
The Dow Jones industrial average (.DJI) was up 151.68 points, or 1.18 percent, at 12,997.46. The Standard & Poor's 500 Index (.SPX) was up 21.72 points, or 1.54 per cent, at 1,432.99. The Nasdaq Composite Index (.IXIC) was up 31.33 points, or 1.28 per cent, at 2,482.40 after earlier rising as high as 3 percent.
Major European indexes recovered substantially after the Fed's announcement from steep declines in earlier trading. Britain's FTSE 100 rose 3.43 per cent, Germany's DAX index rose 2.82 per cent, and France's CAC-40 rose 3.13 per cent.
In Asian trading, which closed before the Fed lowered the discount rate, Japan's Nikkei stock average plunged to close down 5.42 per cent as the yen continued its climb against the dollar.
The dollar briefly dipped below 112 yen for the first time in over a year, suggesting that some investors were taking their Japanese currency out of higher-yielding dollar assets. It later rebounded, though.
Earlier report from Tokyo adds, battered Asian stocks reeled from another huge sell off Friday with Tokyo plunging by the most in over seven years as panicky investors dumped shares to escape the snowballing credit crisis.
Heavy selling on Asia's largest bourse quickly spread across the entire region with major markets down more than five percent as investors scrambled to exit the market fearing further heavy losses.
Japanese share prices closed with a massive 5.42 per cent loss, suffering the biggest one-day point drop since April 2000.
Markets are being battered by fears of financial instability following troubles with risky US mortgages and a squeeze on credit that has prompted central banks to push money into the financial system.
The US Federal Reserve, for example, pumped $17 billion of reserves into the banking system on Thursday and said it was ready to undertake further operations as needed.
"The market is in a very bad state right now," said Fumiaki Nakanishi, head of market research at SMBC Friend Securities.
"Overseas investors are massively selling shares. The situation is very serious with no sign of things calming down," he said.
Stock markets around Asia plunged as investors remained extremely nervous that more bad news might emerge from US credit markets. European markets opened mixed Friday.
Hong Kong share prices were down 6.0 per cent in afternoon trade while Singapore tumbled more than 5.0 per cent as investors fretted that problems in the US mortgage sector could spark a full-blown credit crunch.
Investors fled "the crashing stock markets and headed to the safer bond market," said Akihiko Inoue, a strategist at Mizuho Investors Securities.
Seoul closed 3.1 percent lower after plunging nearly seven percent Thursday -- its biggest ever one-day point decline.
"It's hard to believe that all the skeletons are out of the closet," said Eric Betts, an equity strategist at Nomura Securities in Sydney where shares ended 0.70 per cent lower.
"Some of these (firms' problems) will only come to light if their lenders pull the plug on them or force them to come clean," he added.
For Asian markets the main worry is that foreign investment funds will be forced to further offload shares to cover losses in securities backed by US subprime mortgages to risky borrowers, or to stash funds in more stable bonds.