US Fed cut gives brief boost to global mkts

Global markets saw some relief from the ongoing mayhem as the US Fed rate cut helped stem the massive losses around the world.

Global stock markets saw some relief from the mayhem of the past few days as the US Federal Reserve’s surprise rate cut helped stem the massive losses seen around the world.

In a wildly volatile day for markets, Wall Street ended with moderate losses while European shares closed mainly higher a day after their worst session since 2001. Earlier, Asian markets plunged for a second day.

Traders said the Federal Reserve cut of three-quarters of a percentage point to 3.5 percent was welcomed as a dramatic assertion that policymakers were prepared to make tough calls to bolster growth.

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The Dow Jones Industrial Average finished down 1.06 per cent at 11,971.19 points, rebounding from a loss of over 400 points at the open. The blue-chip index has tumbled almost 10 per cent in the year to date.

The tech-heavy Nasdaq slumped 2.04 per cent to 2,292.27 and the broad-market Standard & Poor’s 500 index shed 1.11 per cent to 1,310.50 as the New York market saw its fifth straight losing session.

London’s FTSE 100 index of leading shares closed 2.90 per cent higher at 5,740.10 and the Paris CAC 40 index closed 2.07 per cent higher at 4,842.54.

But the Frankfurt DAX ended the day 0.31 per cent lower at 6,769.47 points.

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Dealers said market worries persisted that the US economy was falling into a recession, amid a lingering housing market meltdown, that could hit the rest of the world.

The Fed rate cut gained support from investors, but some market-watchers believe further cuts are in store.

“This major move might seem like a panic response to the plunge in stock prices but it also makes sense,” said Dick Green, a market analyst at Briefing.com.

“The markets are in a panic, and the Fed needed to respond in kind.”

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Markets appeared disappointed by the economic stimulus plan proposed Friday by US President George W Bush, valued at between 140 and 150 billion dollars and viewed as confirmation that the world’s biggest economy is headed for trouble.

“The notion that the rest of the world would be immune from a US slowdown was nonsense and the rest of the world woke up to the fact that the chance of recession is more than 50-50,” said Nariman Behravesh, chief economist at Global Insight,

Behravesh said US and European markets “are not that overvalued but some of the emerging markets are, so I think it’s not surprising that’s where you see some of the biggest drops.”

Dealers warned that markets could remain volatile for some time.

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“In the end the Fed simply couldn’t wait another week until it’s next scheduled (rate) meeting,” said Capital Economics analyst Paul Ashworth.

“It chose to act, cutting the fed funds rate by an almost unprecedented 75 basis points to 3.5 per cent … in an attempt to shore up confidence before US stock markets open.”

In the face of the continuing market turmoil, world officials urged calm and played down recessionary fears.

White House spokeswoman Dana Perino told reporters the Bush administration was “not forecasting a recession” while German Chancellor Angela Merkel told NDR-Info radio, “There is no reason to believe there will be a recession in Europe or in Germany.”

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The Sao Paulo Bovespa stock market — Latin America’s biggest — rallied 4.45 per cent, clawing back some deep losses weathered a day earlier. Mexico’s Bolsa index leapt 6.36 per cent while Canada’s S&P/TSX index shot up 4.2 per cent.

Asian shares plunged earlier on Tuesday, sending a clutch of markets down more than seven per cent.

Tokyo, the region’s biggest stock market, slid 5.65 per cent to below the 13,000 points level for the first time since September 2005, while trading was briefly suspended in South Korea and India.