Stock Prices Surge on New Fed Plan
Wednesday December 12, 11:15 am ET
By Madlen Read, AP Business Writer Wall Street Rises Sharply After
Federal Reserve Unveils Plan to Work With Other Central Banks NEW YORK (AP)
-- Wall Street shot higher Wednesday after the Federal Reserve announced a plan
to work with other central banks to alleviate a global credit crisis. The Dow
Jones industrials surged more than 120 points. Investors upset by the
Fed's quarter-point rate cut Tuesday were relieved by the central banks'
commitment to help the economy weather the ongoing credit and mortgage crisis.
The Fed said it had agreed with the European Central Bank and the central
banks of England, Canada and Switzerland to confront what it called elevated
pressures in the credit markets. The Fed said it will create a temporary
auction facility to make funds available to banks and set up lines of credit
with the European and Swiss central banks for additional resources. "I think
it's certainly a strong measure to ease this credit crunch
and I think it will encourage banks to use the discounted borrowing. If banks
won't lend to each other, then at least the central banks will lend to them,"
said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
In midmorning trading, the Dow, which plunged 294 points Tuesday, rose 128.35,
or 0.96 percent, to 13,561.12. The blue chip index had risen as much as 271.75,
or 2 percent, in early trading. Broader stock indicators also soared. The
Standard & Poor's 500 index gained 17.84, or 1.21 percent, to 1,495.49. The
Nasdaq composite index added 38.39, or 1.45 percent, to 2,690.74. Bond prices
fell as investors returned to the stock market. The 10-year Treasury note's
yield, which moves opposite the price, rose to 4.13 percent from 3.97 percent
late Tuesday. On Tuesday, stocks plummeted after the Fed lowered the target
fed funds rate by a quarter point to 4.25 percent, disappointing investors who
hoped for a more aggressive move to boost the
economy during the seize-up in credit and rise in home foreclosures. Investors
were also unnerved that the central bank did not implement a larger cut in the
discount rate -- the rate the Fed charges banks -- and did not offer a more
definite pledge to cut rates further. "We've thought for some time the market
was going to be volatile and trendless until the end of the year," said Brian
Gendreau, investment strategist for ING Investment Management. "The Fed rate
cut didn't do it to help us get through this weak patch in the economy. These
new liquidity vehicles, and coordination with foreign central banks, is what
investors were looking for." Investors also digested new economic data. The
Commerce Department reported that the U.S. trade deficit rose to the loftiest
level in three months, driven by record-high oil prices and an influx of
Chinese imports. Import prices surged. In corporate news, SLM Corp., the
student loan company known as Sallie Mae, slashed its 2008
earnings due to the costs of replacing an interim funding facility. The
company also disclosed it failed to renegotiate a buyout with an investor group
that balked several months ago at its original $25 billion cash offer. Shares
plunged $2.99, or 9.2 percent, to $29.99. The dollar fell against the euro
and pound but rose versus the yen. Gold prices rose. Energy prices rose after
the Energy Information Administration reported surprising declines in U.S.
stockpiles of crude oil and distillate fuels, such as heating oil. Light, sweet
crude for January delivery jumped $2.21 to $92.23 a barrel on the New York
Mercantile Exchange. The Russell 2000 index rose 12.50, or 1.63 percent, to
778.77. Advancing issues led decliners by a 4 to 1 basis on the New York
Stock Exchange, where volume came to 348.4 million shares. Overseas, Japan's
Nikkei stock average closed down 0.70 percent, while Hong Kong's Hang Seng
index closed down 2.41 percent. Britain's FTSE 100 rose 0.37
percent, Germany's DAX index added 0.95 percent, and France's CAC-40 rose 0.60
percent.
---------------------------------
Never miss a thing. Make Yahoo your homepage.
