Commodities Fall, Fed keep policy with inflation pace

Global Market

Federal Reserve bucked investor bets on a deeper interest-rate cut without spoiling the biggest U.S. stock-market rally. They lowered their benchmark rate by 0.75 percentage point. The Federal Open Market Committee left the door open for further reductions. At the same time, it restored language saying inflation has picked up.
The Standard & Poor's 500 Index climbed 4.2 percent to 1,330.74. The dollar staged its biggest rally against the yen after the decision. Treasury notes declined.
The regular meeting came two days after emergency moves to lower the discount rate by a quarter-point and become a lender of last resort for the biggest Wall Street dealers. They have spent the past week striving to prevent a global financial-market meltdown after a run on Bear Stearns Cos.
Analyst had forecast a full percentage-point reduction. While the decrease was smaller than expected, Fed already made the largest reductions in the federal funds rate.
Stock markets in the U.S. may not maintain their rally today. In Europe, the Dow Jones Stoxx 600 index fell 1 percent, giving up an earlier gain. The FTSE 100 index lost 0.7 percent and futures on the Standard & Poor's 500 index slipped 0.4 percent.
The dollar fell against the euro to $1.5696 per euro and erasing yesterday's gain. It declined to 99.07 yen from 99.85 yen.
Inflation concerns may have been a factor in bringing back language noting that price increases have been elevated and saying that some indicators of inflation expectations have risen. The Fed's preferred price gauge has for three months run above the 2 percent upper band of officials' long-term inflation projections.
In the previous statement, the Fed said only that it expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. The Fed reiterated those points yesterday. They played down inflation concerns and focused on risks to growth.
Yesterday's statement nods to Fed actions over the past two weeks to ease credit-market strains, saying that the rate cut combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity.
Earlier this month, the Fed said it would lend $200 billion in Treasuries to dealers and add another $200 billion through auctions of funds and repurchase agreements.

Stock Market

U.S. stocks retreated after plunging commodity prices sent oil and mining companies lower and an insurer tried to cancel $3.1 billion in protection on Merrill Lynch & Co. mortgage bonds.
Chevron Corp. slid as lower fuel demand increased concern that the Federal Reserve has failed to prevent a recession. Merrill posted its steepest drop, killing a rally in financials spurred at Morgan Stanley and approval for Fannie Mae and Freddie Mac to buy more mortgages.
The Standard & Poor's 500 Index lost 32.32 points to 1,298.42. The Dow Jones Industrial Average dropped 293 to 12,099.66. The Nasdaq Composite Index decreased 58.3 to 2,209.96.
Energy shares in the S&P 500 fell 5.4 percent as a group, after crude dropped almost $5 a barrel. Financial shares decline of 2 percent.
Chevron dropped $4.23 to $81.89 and ConocoPhillips slid $4.66 to $73.61. Exxon Mobil Corp. lost $4.04 to $84.43. Crude slipping 4.5 percent to $104.48 a barrel in New York, after the Energy Department said oil supplies rose by 133,000 barrels to 311.8 million as imports fell.
Raw-materials producers fell 6.3 percent. Barrick Gold Corp. declined $4.33 to $45.25 and Newmont Mining Corp. slid $2.17 to $48.72. Gold plunged $59 an ounce. Futures for April delivery fell 5.9 percent to $945.30 an ounce
Merrill Lynch slumped $5.18 to $41.45. The brokerage sued XL Capital Assurance Inc. over default protection on $3 billion of collateralized debt obligations that the bond- insurance unit of Security Capital Assurance Ltd. is seeking to void.
Lehman Brothers Holdings Inc. tumbled $4.26 to $42.23. They may have more writedowns in future quarters until troubled assets of $87 billion are removed from the firm's balance sheet.
Monsanto Co. is losing $13.21 to $98.87. Wheat, corn and soybeans dropped by the maximum permitted by the Chicago Board of Trade as rain improved crop prospects in Australia and farmers worldwide prepared to sow more grain to take advantage of record prices. Monsanto also lost in France's highest court to overturn a ban on genetically modified corn.
CIT Group Inc. lost $1.65 to $11.64. They had its rating cut one level by Moody's Investors Service, which cited its reduced funding flexibility amid a tightening credit market. The rating was cut to A3 from A2.
Discover Financial Services dropped $2.20 to $15.20. The profit fell 65 percent on charges tied to selling a U.K. unit. Financial shares had rallied as much as 2.5 percent earlier.
Freddie Mac climbed $3.88 to $29.90. Fannie Mae added $2.49 to $30.71. Regulators cut their surplus capital requirement to 20 percent from 30 percent to help expand their combined mortgage investments and revive the home-loan market. The change is expected to provide $200 billion in funds to the mortgage-backed securities market. The government-chartered companies also agreed to raise more capital.
Morgan Stanley gained 59 cents to $43.45. They earned $1.45 a share, topping estimates of $1.01.
Visa Inc. rallied $12.50 to $56.50. They set a record for U.S. IPO yesterday by raising $17.9 billion. Underwriters sold 406 million shares of Visa for $44 each, $2 more than the prospectus price.
Adobe Systems Inc. surged $2.87 to $34.75. They maintained its projection for revenue growth of about 13 percent, easing concerns that advertising and marketing companies are curbing software spending.
MGIC Investment Corp. fell 90 cents to $13.10. They plans to raise $675 million through stock and convertible debt sales to increase capital after fourth-quarter loss.
General Mills Inc. gained 72 cents to $58.92. They posted third-quarter profit exceeded estimates after the company raised prices and reduced production costs.

Currencies

The yen rose against the dollar and euro as declines in gold and oil. Fed speculation investors are exiting purchases of commodities that were financed with cheap loans from Japan.
The yen rose against all active currencies yesterday after gold plunged and oil fell. Commodities sank on speculation the Federal Reserve will ease the pace of interest-rate cuts, after the central bank signaled concern on inflation..
The yen rose to 98.70 per dollar. Currency trading volume in Asia today may be about 50 percent of normal levels because of a public holiday in Japan.

Commodities

Oil
Crude oil was little changed after falling as a government report showed U.S. demand dropped, increasing concern that the Federal Reserve has failed to prevent a recession.
Total implied fuel demand averaged 20.3 million barrels a day in the past four weeks, down 3.2 percent from a year earlier.
Crude oil for May delivery rose 8 cents to $102.62 a barrel. April futures fell $4.94 to expire at $104.48 a barrel. May contract dropped 5.5 percent. Futures rose to $111.80 a barrel.
Gold, platinum and wheat fell with other commodities traded in New York and Chicago.
Oil supplies rose a less-than-estimated to 311.8 million. Crude-oil inventories were forecast to rise 2.25 million barrels. Imports of crude oil plunged 10 percent to 9.47 million barrels a day. Petroleum-product imports declined 6.1 percent to 3.1 million barrels a day.
Refineries operated at 83.8 percent of capacity last week, down 1.2 percentage from the week before. Refineries expected to operate at 85.3 percent of capacity.
U.S. crude-oil inventories in March 14 were 1.1 percent above the five-year average. Gasoline supplies were 10 percent above the five-year average. Gasoline stockpiles fell 3.45 million barrels to 232.5 million.
Gasoline for April delivery fell 9.97 cents to $2.5603 a gallon in New York. Futures touched $2.7435.
The Federal Reserve said the outlook for economic activity has weakened as it cut interest rates. Brent crude for May settlement declined $4.84 to $100.72 a barrel. Futures reached a record $107.97 a barrel.

Gold
Gold futures plunged after the Federal Reserve reduced U.S. borrowing costs less than expected and signaled more cuts won't be as aggressive. Silver tumbled more than 7 percent.
The Fed reduced the overnight-lending rate 0.75 percentage point to 2.25 percent. Two days ago, gold reached $1,033.90 an ounce as cuts to the benchmark rate sent the dollar to an all-time low against the euro.
Gold futures for April delivery fell $59 to $945.30 an ounce. That marked the biggest drop since June 2006.
Silver futures for May delivery fell $1.515 to $18.445 an ounce.
Before today, gold climbed 20 percent in 2008 after gaining for seven straight years.
Treasuries rallied as interest-rate futures show traders paring bets the Fed will reduce its target rate by 0.5 percentage point at its April meeting. The dollar rose against a basket of six major currencies.
Gold futures reached the record this week after Bear Stearns Cos. accepted a buyout from JPMorgan Chase & Co. to avoid collapse.
Goldman Sachs Group Inc. and Morgan Stanley said they were borrowing cash directly from the Fed, signaling the central bank's steps to ease borrowing restraints are working. The Fed last week said it would lend banks $200 billion in exchange for mortgage-backed debt.
Fed believe that the rate cut and earlier measures should help to promote moderate growth and to mitigate the risks to economic activity. The central bankers also signaled monetary policy may now include fighting inflation.
The Standard & Poor's 500 Index jumped 4.2 percent after the rate cut, while gold fell 2.6 percent. Equities climbed 0.8 percent before retreating as shares of energy and mining companies dropped.