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US rate cut boosts global markets US rate cut boosts global markets
(about 3 hours later)
UK shares swung firmly back into positive territory following the US Federal Reserve's move to cut the rate at which it lends to commercial banks.UK shares swung firmly back into positive territory following the US Federal Reserve's move to cut the rate at which it lends to commercial banks.
The decision, which will help to increase the flow of money in the US financial system, saw London's FTSE 100 jump 3.5% or 205.3 points to 6,064.2. The 0.5% cut, which will help to increase the flow of money in the US financial system, saw London's FTSE 100 jump 3.5% or 205.3 points to 6,064.2.
Relief was also felt in Wall Street, where shares opened sharply higher, and elsewhere in Europe.Relief was also felt in Wall Street, where shares opened sharply higher, and elsewhere in Europe.
At the close of trade in New York, the Dow Jones ended up 1.82% at 13,079.1.At the close of trade in New York, the Dow Jones ended up 1.82% at 13,079.1.
The Nasdaq, which is dominated by technology companies, was also the recipient of a recovery of sentiment from deeply negative to tentatively positive. It was 2.31% ahead at 1,888.78. The Nasdaq, which is dominated by technology companies, was also the recipient of a recovery of sentiment from deeply negative to tentatively positive. It was 2.31% ahead at 1,888.78 at the end of a chaotic week for global stocks.
Tighter credit conditions and increased uncertainty have the potential to restrain economic growth US Federal Reserve Open Markets Committee Fed cuts rate to calm stocksTighter credit conditions and increased uncertainty have the potential to restrain economic growth US Federal Reserve Open Markets Committee Fed cuts rate to calm stocks
At the end of the day in Europe, Frankfurt's Dax was up 1.49%, while the Cac 40 in Paris closed 1.86% higher. The Fed's eagerly anticipated action will make it easier for banks and mortgage lenders to access the emergency capital it has been pumping into the US financial system over the past few weeks.
This brought some calm to shares, which have been hit by concerns over the worsening credit outlook.
The intervention had an immediate positive affect on European markets, and the Frankfurt Dax closed 1.49% ahead before the weekend, while the Cac 40 in Paris jumped 1.86% higher.
All three main European indexes had veered in and out of the red throughout the day's trading.All three main European indexes had veered in and out of the red throughout the day's trading.
The Fed's rate cut is intended to help with the liquidity problems facing many banks following the US housing slump.
On Thursday, London's FTSE 100 fell 4.1%, cutting almost £60bn off the value of Britain's top companies.On Thursday, London's FTSE 100 fell 4.1%, cutting almost £60bn off the value of Britain's top companies.
See long term trends among the major stock market indexes See long term trends among the major stock market indexes
Wait and seeWait and see
The recent worldwide slide in share prices was triggered by problems in the US mortgage market. The root of the worldwide slide in share prices lies in the US mortgage market.
The problems centre on the sub-prime sector, which offers higher-risk loans to people with a poor credit history.The problems centre on the sub-prime sector, which offers higher-risk loans to people with a poor credit history.
Which markets ended the week higher, and which lower? London's FTSE 100: up 0.4% Dow Jones: down 1.2%S&P 500: down 0.5%Frankfurt's Dax: up 0.4%Tokyo's Nikkei 225: down 8.9%Hong Kong's Hang Seng: down 6.4%Which markets ended the week higher, and which lower? London's FTSE 100: up 0.4% Dow Jones: down 1.2%S&P 500: down 0.5%Frankfurt's Dax: up 0.4%Tokyo's Nikkei 225: down 8.9%Hong Kong's Hang Seng: down 6.4%
As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime borrowers have defaulted on their loans.As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime borrowers have defaulted on their loans.
Because the lenders have often sold on the debt, this has led to extensive financial difficulties for a number of investment funds with heavy exposure to the sector - prompting fears of a wider financial crisis. Because the lenders have often sold on the debt, this has led to extensive financial difficulties for a number of investment funds with heavy exposure to the sector.
The worry for many investors is that stock market declines will resume next week, wiping even more money off the value of pension funds and global stock markets. This, in turn, has prompted fears that the crisis currently contained in the financial markets could eventually spill over into real economic problems, like greater job insecurity, lower pensions and a flattening housing market.
Analysts said there was no guarantee that Friday's upward trend would be maintained when trading resumed after the weekend. Sentiment was not helped by the iconic US department store, Macy's, warning this week that fewer shoppers were walking through its doors. This followed bleak earnings forecasts from retail giant Wal-Mart and DIY firm Home Depot.
New York's Dow Jones index of leading shares has sunk almost 1,000 points, 6.5%, a month after reaching a record high of 14,000 on 19 July.
Fears linger that when trading resumes after the weekend, further losses could be seen as more financial institutions come clean and admit to the extent of their exposure to now worthless home loans.
Asian lossesAsian losses
The European share recovery followed big falls on Asian stock markets. While European shares received a boost from the Federal Reserve's support, it came too late to help Asian stock markets, which had earlier suffered heavy losses.
Japan's Nikkei declined 5.42%, its biggest points fall since April 2000, while Hong Kong's Hang Seng closed 1.38% lower.Japan's Nikkei declined 5.42%, its biggest points fall since April 2000, while Hong Kong's Hang Seng closed 1.38% lower.
The Bank of Japan injected 1.2 trillion yen ($10.7 billion; £5.4bn) into money markets, which was its third intervention of the week.The Bank of Japan injected 1.2 trillion yen ($10.7 billion; £5.4bn) into money markets, which was its third intervention of the week.
Japanese investors are worried that a slowdown in the US economy will hit exports from Asia.Japanese investors are worried that a slowdown in the US economy will hit exports from Asia.
There is also speculation that the Bank of Japan could raise interest rates next week, despite the problems on the market.There is also speculation that the Bank of Japan could raise interest rates next week, despite the problems on the market.
Elsewhere, the Australian central bank intervened to support its currency for the first time for six years.Elsewhere, the Australian central bank intervened to support its currency for the first time for six years.
The Australian dollar was facing its biggest one-day fall against the US dollar since it was allowed to trade freely in 1983.The Australian dollar was facing its biggest one-day fall against the US dollar since it was allowed to trade freely in 1983.
The dollar has benefited from the financial crisis as investors sought a safe haven.The dollar has benefited from the financial crisis as investors sought a safe haven.
MAJOR SHARE INDEXES OVER THE PAST YEARMAJOR SHARE INDEXES OVER THE PAST YEAR
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