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European, US markets rebound as Fed cuts discount rate

08/17/07 16:54 EDT

By TOBY ANDERSON

LONDON (AP) - Markets across the globe, save for Asia, rebounded Friday after the U.S. Federal Reserve cut its primary discount rate, a surprise move aimed at easing credit and calming financial markets.

By the time the Fed acted, Asian markets had already closed down across the board. The Nikkei 225 index in Tokyo fell 5.4 percent to end at 15,273.68, its lowest close in a year.

Investors from Sao Paulo to London, however, bid up shares almost immediately after the Fed announcement.

The U.K.'s benchmark FTSE 100 surged 3.5 percent to 6,064.20, reversing much of its losses of a day earlier. France's CAC 40 index rose 1.9 percent to 5,363.63 and Germany's DAX index was up 1.5 percent to 7,378.29.

In the United States, the Dow Jones industrial average surged 233.30, or 1.82 percent, to 13,079.08.

Trading was still volatile throughout the day, with the Dow rising more than 320 points in early trading, giving up more than half those gains, and then picking up steam again. Still, the Dow was down more than 1 percent for the week.

The Standard & Poor's 500 index rose 34.65, or 2.46 percent, to 1,445.92, and the Nasdaq composite index rose 53.96, or 2.20 percent, to 2,505.03.

Bonds slipped as stocks rose, with the yield on the benchmark 10-year Treasury note rising to 4.67 percent from 4.66 percent late Thursday.

U.S. stocks soared after the Federal Reserve acknowledged that the stock market's recent plunge posed a threat to the overall economy.

The Fed announcement, that it would lower the rate on loans charged to banks, stopped a global slide that had lasted more than a week amid turmoil in the credit markets. Central banks around the world have poured billions in additional liquidity into the banking system, but Friday's rate cut marked the Fed's most dramatic move.

"This move should be seen as more of a reassurance step, should interbank liquidity begin to dry up again," said ING economist Rob Carnell.

But other analysts were less certain about the move.

"The market turbulence has forced the Fed's hand here, and whilst an emergency cut might give the markets some temporary relief, some might say there is a sense of panic coming from the Fed," said Martin Slaney, head of spread betting at GFT Global Markets.

The Fed cut the discount rate to 5.75 percent from 6.25 percent, declaring that "downside risks" to the economy have increased appreciably.

In Brazil, stocks on Sao Paulo's Bovespa exchange seesawed from positive to negative territory throughout the day. In afternoon trading, the Bovespa's main index was up 0.4 percent to 48,119 following steep losses in the two previous trading sessions.

Earlier Friday, Japan's central bank injected 1.2 trillion yen (US$10.5 billion) into money markets - the third injection this week and triple the amount it had supplied the day before - in a bid to curb rises in key interest rates.

Hong Kong's blue chip Hang Seng Index fell 1.4 percent, and the Korea Composite Stock Price Index lost 3.2 percent after dropping 6.9 percent the previous session.

China's shares, which had been hitting new daily highs recently, fell for a second day Friday. The benchmark Shanghai Composite Index ended down 2.3 percent at 4656.57 points, adding to a 2.1 percent loss the previous day. The Shenzhen Composite Index fell 1.6 percent to 1297.21.

A weaker dollar led some Asian exporters down, as the lower U.S. currency hurts Japanese exporters by reducing the value of their overseas earnings when converted back into yen. A weak dollar also makes Japanese exports more expensive abroad.

Toyota Motor Corp. fell 7.2 percent Friday, and Sony Corp. fell 6.8 percent. Suzuki Motor Corp. fell 11 percent and gamemaker Nintendo Co., which relies on overseas sales for much of its revenue, fell 9.7 percent.

Credit Suisse Chief Strategist Shinichi Ichikawa said any bad news ahead, such as a bank abroad faltering, could worsen the market jitters.

"The next couple of weeks will be a very tough time for global financial markets," he said.

AP business writers Yuri Kageyama, in Tokyo, and Alan Clendenning, in Sao Paulo, Brazil, contributed to this report.

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