Business | Markets
Stocks bounce on eve of Fed move
Global stocks roared back from five-year lowson Tuesday as investors cheered a thaw in credit markets.
- Agencies
- Published: 23:32 October 28, 2008
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New York/London: Global stocks roared back from five-year lowson Tuesday as investors cheered a thaw in credit markets while Bank of England projected $2.8 trillion in global losses due to the financial crisis.
Investors expect major economies to cut rates, starting with the United States today and Europe and Britain to follow next week, in an effort to head off a deep recession.
The Dow jumped 4 per cent in early trading, coming on the heels of a world-wide rally that started in Japan, where stocks closed 6.4 per cent higher - but only after hitting a 26-year low. European shares were up nearly 4 per cent.
The question for many, however, was how long this stock market recovery could last.
In a reminder that the current crisis has its origins in the bursting of the US housing bubble, data showed prices of US single-family homes plummeted a record 16.6 per cent in August from a year earlier.
Also in a sign that the fin-ancial turmoil may be undermining an already shaky economy, US consumer confidence plunged to a record low in October, according the Conference Board's survey which dates to the 1960s.
Meanwhile, Britain pressed countries such as China and Gulf states to contribute to a proposed new IMF fund to help poorer governments threatened by "contagion" from the global financial crisis.
Prime Minister Gordon Brown said the International Monetary Fund's current $250-billion bailout fund was not enough, calling for it to be extended rapidly to help countries in need.
Countries continued to bolster their banks, which have been hit by holding assets linked to bad mortgage debts in the United States, and shore up tumbling stock markets.
Tiny Iceland, a surprisingly high-profile victim of the global credit crisis, raised interest rates by massive 6 percentage points to 18 per cent, taking the opposite tack to most countries fighting the global financial crisis.
Iceland's once-booming economy has been driven close to collapse by bank failures, and the central bank said the steep rate increase was part of a deal struck with the IMF for a $2 billion loan.
Governments have agreed to provide around $4 trillion to shore up banks and markets to ease the worst financial crisis in 80 years. The Bank of England said the efforts should calm the banking system but was cautious about the wider economy.
It projected losses globally at $2.8 trillion.
"The instability of the global financial system in recent weeks has been the most severe in living memory," said Deputy Governor John Gieve. "And with a global economic downturn under way, the financial system remains under strain."
Britain, the United States and European Central Bank are expected to cut rates to spur growth.
The consensus among Fed watchers is for a half-point cut in rates to 1 per cent, the lowest level since June 2004.
It has already cut the benchmark federal funds rate to 1.5 per cent from 5.25 per cent over the past 13 months.
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