World markets cheer Fed rate cut

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(Agencies)
Updated: 2008-10-30 21:25

LONDON -- World stock markets rose Thursday after the US Federal Reserve slashed interest rates to help revive the world's largest economy and opened new credit lines with other central banks.

The FTSE 100 index of leading British shares was 29.36 points, or 0.7 percent, higher at 4,271.90, while France's CAC-40 was up 26.75 points, or 0.8 percent, at 3,429.32.

A man stops and takes a look at an electric market board in Tokyo, Thursday Oct. 30, 2008. Asian stock markets rallied Thursday, led by a 12 percent jump in South Korea, after the US Federal Reserve slashed interest rates to help revive the world's largest economy and opened new credit lines with central banks. [Agencies]

Germany's DAX was the biggest gainer in Europe, having underperformed Wednesday after shares in Volkswagen AG slumped around 40 percent as liquidity constraints on the share were eased. The DAX was up 148.07 points, or 3.1 percent, at 4,956.76.

Asian markets were sharply higher, with Hong Kong's Hang Seng index leading the charge, up 12.8 percent at 14,329.85. South Korea's key stock index soared a record 12 percent to 1,084.72 and Japan's Nikkei 225 stock average gained 10 percent percent to 9,029.76 as exporters like Toyota and Sony got a boost from the ongoing fall in the value of the yen.

"Equity markets are continuing to look positive and are set to continue cheering the fact the Fed cut interest rates in line with expectations last night," said Matt Buckland, a dealer at CMC Markets.

The Dow Jones industrial average closed down 74.16, or 0.82 percent, at 8,990.96 on some profit-taking following the previous day's astonishing 11 percent rise. Futures suggested US markets were poised to open higher later, with the Dow up more than 2 percent.

The Fed decided Wednesday to cut its benchmark federal funds rate a half-percentage point to 1.00 percent, its lowest level since 2004, and hinted that there may be more rate cuts to come.

Fed Chairman Ben Bernanke and his colleagues pledged that they would "monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability."

Perhaps of more importance to the markets uptick was the Fed's decision to supply new lines of credit to the central banks of Brazil, Mexico, South Korea and Singapore to help those countries deal with the global credit crisis.

"Although the action was expected, it has nonetheless spurred additional improvement in risk appetite," said Daragh Maher, an analyst at Calyon.

"This could continue, partly because other news developments remain supportive such as the provision of swap lines to four emerging market central banks," he added.

The Fed said it will provide up to US$30 billion to each of the central banks. It is the latest in a series of "swap" arrangements where the Fed provides dollars in exchange for reserves of the other nations' currencies.

The central bank said the new credit lines, like those already established with other countries, were designed "to help improve liquidity conditions in global financial markets" by increasing the global availability of US dollars.

The International Monetary Fund also said Wednesday it is creating a new program to get money quickly to developing countries with strong economies that are facing cash crunches in the global financial crisis.

The IMF's executive board approved a new short-term loan program, called a liquidity facility, to speed funds to the countries. IMF officials said a maximum of around US$100 billion would be available under the emergency loan program.

Elsewhere, benchmarks in Australia, Singapore, Taiwan and the Philippines added 4 percent or more. Russia's two main indices were also up sharply.

Hong Kong's de facto central bank followed by cutting its key lending by the same amount as the Fed and Taiwan reduced its key interest rate by a quarter point. In Japan, speculation mounted that the central bank would cut its key rate, already at a low 0.5 percent, at a meeting Friday.

Before the Fed acted, China also lowered its rates by just over a quarter point. The Shanghai Composite index was up 2.9 percent.

Markets also took heart from an announcement that the Fed would temporarily supply new lines of credit worth up to US$30 billion to the central banks of South Korea, Brazil, Mexico and Singapore to help relieve the global credit crisis.

The modest improvement in market sentiment was evidenced in oil prices, which rose US$0.97 to US$68.47. The contract rose US$4.77 to settle at US$67.50 overnight.

In currencies, the dollar rose 1.3 percent to 98.48 yen, while the euro was 0.8 percent higher at US$1.3068. Meanwhile, the pound strengthened another 0.8 percent to US$1.6435.