US stocks rebound on discount rate cut; Dow adds 230

The Fed - which had resisted lowering rates despite weeks of market volatility, and instead added nearly $120b. in liquidity into the banking system - cut its discount rate to 5.75% from 6.25%.

wall street traders 88 (photo credit: )
wall street traders 88
(photo credit: )
SHARES WALL STREET US stocks barreled higher Friday after the Federal Reserve did what Wall Street was clamoring for and cut its key discount rate a half percentage point. The move quelled investors' credit worries at least for the time being and sent the Dow Jones industrials up about 230 points. The Fed - which had resisted lowering rates despite weeks of market volatility, and instead added nearly $120 billion in liquidity into the banking system - cut its discount rate to 5.75 percent from 6.25%. The central bank acknowledged that the stock market turbulence that has pulled the Dow down by hundreds of points a day was posing a risk to economic growth. "People were kind of baiting the Fed into doing something, and finally they did," said Philip Dow, managing director of equity trading at RBC Dain Rauscher. "The playground monitor finally showed up, and it showed someone cares and someone is bringing rationality into the market." But the central bank made no mention of lowering its target for the federal funds rate, which has stood at 5.25% for more than a year. The fed funds rate determines the rates that banks charge each other, while the discount rate only covers loans the Fed makes to banks. Many strategists believe the market won't settle down until the Fed lowers the fed funds rate target, considered a more significant benchmark. The Dow surged 233.30, or 1.82%, to 13,079.08. A series of triple-digit losses over the past couple of weeks has gnawed a 6% dent in the Dow since it closed at a record 14,000.41 on July 19. The index, despite Friday's robust gains, finished down than 1% for the week; the result of the heavy selling that preceded the Fed's move. The Standard & Poor's 500 index rose 34.67, or 2.46%, to 1,445.94, and the Nasdaq composite index rose 53.96, or 2.20%, to 2,505.03. Bonds slipped as stocks rose, with the yield on the benchmark 10-year Treasury note rising to 4.68% from 4.66% late Thursday. Traders who bet on how the Fed might alter rates expect the central bank will lower the benchmark fed funds rate at its next meeting on September 18. Some investors are hoping for a cut in that benchmark rate even sooner. EUROPE Stocks rallied after the Federal Reserve cut the US discount rate, a move that shored up confidence in markets battered by credit woes. The UK's FTSE 100 index closed up 3.5% at 6,064.20, while the French CAC-40 index gained 1.9% at 5,363.63 and the German DAX 30 index advanced 1.5% at 7,378.29. European financials surged, with shares of Deutsche Bank up 3.5%, Royal Bank of Scotland adding 6% and BNP Paribas jumping 4.7%. ASIA Shares extended losses with Japan's benchmark nose-diving 5.4% amid little sign of recovery from a global sell-off over US credit fears. The US dollar's decline against the yen worsened earnings prospects for Japanese companies and added to the battering Tokyo's benchmark has been taking in recent sessions. The Nikkei 225 index fell 874.81 points to close at 15,273.68, its lowest finish in a year. CURRENCY The dollar slipped against the euro and British pound after the US Federal Reserve cut its discount rate to banks by a half percentage point. The 13-nation euro rose to $1.3475 in afternoon New York trading from $1.3405 in New York late Thursday. The British pound also edged up to $1.9798 from $1.9792. Meanwhile, the dollar gained on the Japanese currency, moving up to 114.00 from 113.11 yen, and bought 1.0637 Canadian dollars, down from 1.0773. COMMODITIES The markets followed Wall Street higher after the Federal Reserve appeased investors nervous about tight credit by lowering its key discount rate a half-percentage point. Oil prices jumped as traders monitored Hurricane Dean, hovering over the Caribbean and headed west. The US's National Hurricane Center predicted two potential paths for the Category 2 storm, with models roughly split between a move over Mexico's Yucatan peninsula or a turn northwest into the Gulf of Mexico - which would make for a stronger storm that could threaten oil installations in the region. Light, sweet crude for September delivery rose 98 cents to settle at $71.98 a barrel on the New York Mercantile Exchange, while gasoline futures gained rose 6.05 cents to close at $2.0388 a gallon. Elsewhere on the Nymex, gold and silver rebounded from Thursday's sharp losses. December gold rose $8.80 to settle at $666.80 an ounce, while September added 30.5 cents to end at $11.80 an ounce.