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US share relief over bank results US stocks vault higher on Fed cut
(about 6 hours later)
Wall Street shares have risen on relief that results from two major investment banks were not as bad as feared. Wall Street shares powered higher after a substantial cut in US interest rates to fight the escalating credit crisis.
The market also took heart on relief that results from two major investment banks were not as bad as feared.
Lehman Brothers and Goldman Sachs both reported sharp falls in profits for the first three months of 2008, but the results were better than expected.Lehman Brothers and Goldman Sachs both reported sharp falls in profits for the first three months of 2008, but the results were better than expected.
In early exchanges, the Dow Jones index was up 196 points or 1.6% at 12,168.4. The benchmark Dow Jones index ended up 420.41 points, or 3.51%, at 12,392.66, its biggest one-day gain in five years.
In Europe, shares rebounded from Monday's heavy losses with the UK's FTSE 100 up almost 3%. Asian stock markets rallied earlier. "The earnings this morning allayed investors' fears that there's going to be a hard collapse," said Jim Herrick, director of equity trading at Baird & Co.
European banks reacted positively, HSBC added 7%, Credit Agricole was also up 7% and in Frankfurt Deutsche Bank shares added more than 5%. In Europe, shares rebounded from Monday's heavy losses with the UK's FTSE 100 index ending up 3.54%. Asian stock markets rallied earlier.
Confidence boost
The Fed has cut US interest rates to 2.25% from 3% in an attempt to restore confidence to nervous financial markets and boost the ailing economy.
The cut was smaller than financial markets had expected, causing the Dow Jones initially to trim gains, but investors were able to shrug off any disappointment and step up their buying spree.
"The economy will likely recover later this year, based on what the Fed is doing," said Chip Hanlon, president of Delta Global Advisors.
"The market is rallying today. It got so oversold that I won't be surprised to see it rally further."
The broader Standard & Poor's 500 Index rose 4.24%, while the technology-heavy Nasdaq climbed 4.19%.
The emergency sale of Bear Stearns over the weekend had rocked the markets.
Investors hope the cut in interest rates will ease the credit crunch by making it easier and cheaper for banks to lend and borrow money.
As the economy has worsened, banks have become reluctant to extend loans to consumers and financial institutions.
Bear Stearns got into trouble when other banks refused to lend it money over fears that it had too many bad debts due to the sub-prime mortgage crisis.
Asian markets were largely higher, Tokyo's Nikkei average closed up 1.5%, Hong Kong's Hang Seng added 1.4% and Mumbai's Sensex was up 2.0%.Asian markets were largely higher, Tokyo's Nikkei average closed up 1.5%, Hong Kong's Hang Seng added 1.4% and Mumbai's Sensex was up 2.0%.
But Shanghai's main index fell almost 4% on worries that Beijing will make further efforts to slow the economy.But Shanghai's main index fell almost 4% on worries that Beijing will make further efforts to slow the economy.
Fed focus
The main focus for investors on Tuesday is the interest rate meeting at the US Federal Reserve.
Investors are expecting the US policy makers to slash interest rates later.
Some think the benchmark Fed funds rate will be cut by one percentage point, to 2%.
The Fed is battling to restore confidence in the US banking sector, as well as boosting the economy.
The emergency sale of Bear Stearns over the weekend rocked the markets.
Investors fear the credit crunch is escalating, which will make banks less willing to lend money and hit consumer spending.
HAVE YOUR SAYCredit is rammed down everyone's throat... Well now it looks as if pay back time is loomingRob, Newcastle upon Tyne, UKSend us your commentsHAVE YOUR SAYCredit is rammed down everyone's throat... Well now it looks as if pay back time is loomingRob, Newcastle upon Tyne, UKSend us your comments
They are now awaiting results from some of the other key US investment banks, with both Goldman Sachs and Lehman Brothers reporting their latest results on Tuesday.
Central banks in both the UK and US have moved to ease the crisis.
The Bank of England injected £5bn to boost lending among banks, while the Fed cut its discount rate - the interest rate at which it lends to commercial banks - from 3.5% to 3.25%.
And US President George Bush attempted to reassure investors, accepting that the American economy faced "challenging times" but insisting that the Fed was "on top of the situation".
"When need be, we will act decisively, in a way that continues to bring order to the financial markets," he said. "In the long run, our economy is going to be fine."
Do you have any questions on how the world economic situation might affect you? Have you already been hit by tightening credit conditions? Do you own a small business that is struggling to get credit? Send us your questions and experiences using the form below:Do you have any questions on how the world economic situation might affect you? Have you already been hit by tightening credit conditions? Do you own a small business that is struggling to get credit? Send us your questions and experiences using the form below:
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