After a volatile morning, European markets received a lunchtime boost from the surprise decision by the US Federal Reserve to cut the discount rate by 50 basis points to 5.75%.
In London, the FTSE 100 rebounded over 3% following the announcement and was 205 points higher at 6,064 by Friday’s close. Elsewhere in Europe, the Frankfurt DAX-30 climbed 108 points to end the day at 7,378 and the Paris CAC-40 closed 98 points higher at 5,363.
On Wall Street, stocks staged their biggest rally in four years. The Dow Jones opened nearly 300 points higher, at 13,127, and there were steep gains on the S&P 500 and Nasdaq.
Dangers to economic growth
The Fed cited the dangers posed to economic growth from deteriorating financial market conditions and tighter credit.
The discount rate – which applies to loans to commercial banks from regional Federal Reserve lending facilities – is separate from the federal funds rate, which remains at 5.25%.
The move provides a short-term solution to the liquidity crisis currently facing financial institutions and will remain effective, said the bank, until the situation improves.
(Are central banks right to intervene in the markets, or should they stand back and allow a much-needed bloodletting to take place? You can read Bill Bonner’s views on the matter in the Latest Issue of MoneyWeek, out today)
Oil and gold up, dollar down
In the commodities markets, the oil price jumped as investor concerns over slowing economic growth subsided. Crude futures were almost 2% higher at $72.33 in New York and Brent spot had risen to $69.54 in London.
Copper also ended its three-day losing streak. Copper for delivery in three months jumped over 4% to $7,020 a tonne on the London metals exchange.
Fellow metals gold and silver were also firmer today as the dollar fell.
Sterling had risen as high as 1.9935 against the dollar and was also up against both the euro and the yen.
1535 GMT, 17/8/07