US, Europe bourses soar after Fed cuts key interest rate
US, Europe bourses soar after Fed cuts key interest rate
By Goh Eng Yeow, Markets Correspondent
EUROPEAN and United States share markets rocketed last night after the US central bank made a surprise cut in a key interest rate in a bid to calm jittery investors.
European bourses reversed their losses and shot up - London was 4 per cent ahead at one point - while Wall Street added as much as 320 points within minutes of opening before shedding much of the gains in early trading.
At press time, the Dow Jones Industrial Average was up 119.09 points, or 0.93 per cent, at 12,964.87.
All eyes will now be on Asian bourses when trading resumes on Monday, and investors are expecting a similar rebound if Wall Street's gains are sustained till the close.
The New York Times called the Fed's move a 'significant change'', noting that it left its benchmark short-term interest rates unchanged just a few weeks ago, citing continued concern about inflation.
The paper said the move signals that policy makers may be prepared to cut interest rates more quickly than earlier thought.
The move came after what had already been an extraordinary day on Asian bourses, particularly in Singapore.
The Straits Times Index (STI) had plunged by 190 points after lunch, but staged an astonishing U-turn to claw most of it back late in the day to close just 21.45 points down at 3,130.71.
But the STI's heroics were trumped by the US Fed when it announced at 8.30pm (Singapore time) that it had cut its discount rate by 0.5 percentage points, from 6.25 per cent to 5.75 per cent.
The discount rate is the rate the Fed charges to make direct loans to US banks. It means banks can get their hands on cash at a cheaper rate, easing fears over the availability of credit.
The Fed justified the unscheduled cut because 'financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth'.
The response was instant and stunning. European markets reversed out of the red, while Wall Street went north once it opened an hour later.
It also gave shell-shocked traders here a welcome lift for the weekend. Remisier Alan Tan said: 'This is the best news I have heard this week.'
Stock markets across most of Asia had earlier staged comebacks of varying strengths in late trading to erase one of the worst single-day losses in 20 years.
Hong Kong staged an STI-style rebound, with the Hang Seng Index ending down 285.26 points after diving 1,285 points after lunch.
Dealers have blamed hedge funds - investment funds with billions of dollars under their control - for the Asian roller-coaster.
'Hedge funds are having a field day,' said the stockbroking director of a Singapore brokerage, as traders stared at a sea of red ink from Mumbai to Tokyo.
Singapore had opened slightly higher after a late overnight bounce on Wall Street. But optimism soon evaporated when Tokyo came under heavy selling pressure after the yen rose sharply against the US dollar and other regional currencies.
This forced funds with massive yen loans to dump stocks and bonds as they stampeded out of Asia.
When Tokyo's Nikkei-225 Index closed down 874.81 points, or 5.4 per cent, at 3pm (Singapore time), all other regional bourses were trading at their lowest ebb.
Unconfirmed talk in Hong Kong of buying shares in giant China-listed firms by mainland Chinese funds gave the Hong Kong market a lift, and enabled the Hang Seng to recover almost 1,000 points in the last hour of trading.
That Hong Kong recovery helped the STI recover 168 points in two hours.
By Goh Eng Yeow, Markets Correspondent
EUROPEAN and United States share markets rocketed last night after the US central bank made a surprise cut in a key interest rate in a bid to calm jittery investors.
European bourses reversed their losses and shot up - London was 4 per cent ahead at one point - while Wall Street added as much as 320 points within minutes of opening before shedding much of the gains in early trading.
At press time, the Dow Jones Industrial Average was up 119.09 points, or 0.93 per cent, at 12,964.87.
All eyes will now be on Asian bourses when trading resumes on Monday, and investors are expecting a similar rebound if Wall Street's gains are sustained till the close.
The New York Times called the Fed's move a 'significant change'', noting that it left its benchmark short-term interest rates unchanged just a few weeks ago, citing continued concern about inflation.
The paper said the move signals that policy makers may be prepared to cut interest rates more quickly than earlier thought.
The move came after what had already been an extraordinary day on Asian bourses, particularly in Singapore.
The Straits Times Index (STI) had plunged by 190 points after lunch, but staged an astonishing U-turn to claw most of it back late in the day to close just 21.45 points down at 3,130.71.
But the STI's heroics were trumped by the US Fed when it announced at 8.30pm (Singapore time) that it had cut its discount rate by 0.5 percentage points, from 6.25 per cent to 5.75 per cent.
The discount rate is the rate the Fed charges to make direct loans to US banks. It means banks can get their hands on cash at a cheaper rate, easing fears over the availability of credit.
The Fed justified the unscheduled cut because 'financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth'.
The response was instant and stunning. European markets reversed out of the red, while Wall Street went north once it opened an hour later.
It also gave shell-shocked traders here a welcome lift for the weekend. Remisier Alan Tan said: 'This is the best news I have heard this week.'
Stock markets across most of Asia had earlier staged comebacks of varying strengths in late trading to erase one of the worst single-day losses in 20 years.
Hong Kong staged an STI-style rebound, with the Hang Seng Index ending down 285.26 points after diving 1,285 points after lunch.
Dealers have blamed hedge funds - investment funds with billions of dollars under their control - for the Asian roller-coaster.
'Hedge funds are having a field day,' said the stockbroking director of a Singapore brokerage, as traders stared at a sea of red ink from Mumbai to Tokyo.
Singapore had opened slightly higher after a late overnight bounce on Wall Street. But optimism soon evaporated when Tokyo came under heavy selling pressure after the yen rose sharply against the US dollar and other regional currencies.
This forced funds with massive yen loans to dump stocks and bonds as they stampeded out of Asia.
When Tokyo's Nikkei-225 Index closed down 874.81 points, or 5.4 per cent, at 3pm (Singapore time), all other regional bourses were trading at their lowest ebb.
Unconfirmed talk in Hong Kong of buying shares in giant China-listed firms by mainland Chinese funds gave the Hong Kong market a lift, and enabled the Hang Seng to recover almost 1,000 points in the last hour of trading.
That Hong Kong recovery helped the STI recover 168 points in two hours.
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