DJIA Rise as The Fed Inject $200 Billion
Global Market
The Federal Reserve struggling to contain a crisis of confidence in credit market, for the first time lend Treasuries in exchange for debt that includes mortgage-backed securities.
The Fed said in a statement in Washington it plans to make up to $200 billion available through weekly auctions and the program may be increased as needed. The Fed coordinated the effort with central banks in Europe and Canada to inject up to $45 billion into their banking systems.
U.S. stocks rallied on optimism the initiative will help avert a wider credit crunch.
Today's steps indicate the Fed is increasingly concerned about the investor exodus from mortgage debt, which threatens to deepen the housing contraction and the economic slowdown. The program is aimed at countering a decline in liquidity in financial markets around the world, and comes after signs of increasing stress in U.S. mortgage securities.
The Standard & Poor's 500 stock index jumped to 1,320.65. Ten-year Treasury yields climbed to 3.61 percent.
The Fed said it will lend Treasuries for 28-day periods in return for debt. The loans will be made under the Term Securities Lending Facility.
Officials ``will consult with primary dealers on technical design features'' on the new resource before the first weekly auction is held on March 27.
The Fed holds about $713 billion of Treasuries on its balance sheet.
The resource allows dealers to switch debt that is less liquid for U.S. government securities that are easily tradable. They anticipated that the primary dealers will lend the Treasuries on to other firms in return for cash. That will help the dealers finance their balance sheets.
They will discount the value of the assets submitted in exchange for Treasuries, though the details are still under discussion. Analyst said the so-called haircuts may be around 10 percent on residential mortgage-backed securities.
The Fed increased its currency swap line with the European Central Bank to $30 billion, from $20 billion, and one with the Swiss National Bank to $6 billion, from $4 billion.
The ECB said today it will lend banks up to $15 billion for 28 days and the SNB announced a similar auction of up to $6 billion. The Bank of England will offer $20 billion of three- month loans March 18 and hold another auction April 15. The Bank of Canada plans to buy $4 billion of securities for 28 days.
The TSLF becomes the second new tool introduced by the Fed in three months. In December, the Fed set up the so-called Term Auction Facility to loan funds to banks in exchange for a wide variety of collateral, including mortgage debt.
Last week, the Fed increased the size of its planned TAF auctions, to $100 billion this month from a previously announced $60 billion. The central bank also said March 7 that it would make $100 billion available through repurchase agreements, where the Fed loans cash in return for assets including mortgage debt.
Fed want to increase liquidity and the regular functioning of markets, rather than determine appropriate prices for securities and it directly would affect prices.
Stock Market
U.S. stocks rallied the most in five years after the Federal Reserve said it will pump $200 billion into the financial system to shore up banks battered by mortgage- related losses.
Citigroup Inc., Bank of America Corp. and Fannie Mae led the Standard & Poor's 500 Financials Index to its biggest gain in eight years on expectations the Fed's move will spur lending. Washington Mutual Inc. climbed on speculation the largest savings and loan will get a cash infusion from an outside investor. All 10 industry groups in the S&P 500 rose except for health-care companies, which fell after WellPoint Inc. cut its earnings forecast.
The S&P 500 added 47.28 points to 1,320.65. The Dow Jones Industrial Average surged 416.66 to 12,156.81. The Nasdaq Composite Index increased 86.42 to 2,255.76.
The S&P 500 rebounded from the lowest level as 479 of its members advanced. Yields on two-year Treasury notes gained, as the Fed's move to relieve the credit crisis prompted investors to dump holdings of government debt. The dollar rose the most in six months against the yen and rebounded from a record low versus the euro.
Citigroup rallied $1.80 to $21.49. Bank of America climbed $2.41 to $37.72.
Financial shares in the S&P 500 gained 7.4 percent as a group and rebounded from the lowest level since May 2003.
Fannie Mae added $2.19 to $22. Freddie Mac rose $2.77 to $20.16. Countrywide Financial Corp. climbed 75 cents to $5.11.
Washington Mutual added $1.84 to $11.88.
The Fed said it plans to lend Treasuries in exchange for mortgage-backed securities and other debt that has plunged in value as homeowners defaulted on their payments.By lending Treasuries in exchange for mortgage-backed securities, the Fed will allow banks to switch debt that is less liquid for bonds that are easily tradable. Fed also told on condition of anonymity that the program may be increased as needed. The move may also allow the central bank to cut interest rates less drastically than previously expected, leading to lower inflation. Previous easing by the Fed failed to boost stocks.
The central bank subsequently lowered the federal funds rate at which banks led to each other from a five-year high of 5.25 percent to 3 percent in five steps. The discount rate at which banks can borrow from the Fed declined to 3.5 percent from 6.25 percent.
Bear Stearns rose 67 cents to $62.97, main share holder said he may add cash to his holdings. Bear Stearns erased an earlier decline of as much as 11 percent that was spurred by speculation the company lacks sufficient access to capital.
Exxon Mobil Corp. rallied $4.22 to $86.68. Energy shares in the S&P 500 rose 4.6 percent as a group. Gasoline pump prices in the U.S. climbed to an all-time high of $3.227 a gallon and may reach $4 before summer because of record crude-oil prices.
Nucor Corp. surged $4.12 to $67.42. Nucor said it may ``significantly'' boost exports this year as overseas demand rises and a weaker dollar increases the attractiveness of U.S. supplies.
Weyerhaeuser Co. climbed $2.81 to $61.80 after UBS AG raised its recommendation on the stock to ``buy'' from ``neutral'' saying risk from the housing slump is ``starting to be priced in as market expectations have become more realistic.''
Stocks also rose after the Commerce Department reported the January U.S. trade deficit was smaller than forecast. The gap grew 0.6 percent to $58.2 billion. Exports increased 1.6 percent to the highest level ever.
Texas Instruments Inc. lost 89 cents to $28.76. They cut its sales and profit forecasts because of slowing handset demand.
Health-care companies in the S&P 500 lost 0.2 percent as a group. WellPoint fell $18.66 to $47.26 after cutting profit forecast and saying weakness in the U.S. economy has limited enrollment gains.
Aetna Inc. declined $3.86 to $42.65. Humana Inc. lost $15.32 to $47.38.
The economic slowdown in the U.S. will be deeper and the recovery weaker than previously forecast. The world's largest economy will grow at an annual rate of 0.3 percent
The Russell 2000 Index climbed 4.6 percent. The Dow Jones Wilshire 5000 Index rose 3.6 percent to 13,286.61.
Currencies
The dollar gain a second day against the yen after the Federal said it will extend $200 billion of credit to financial institutions to spur lending, boosting optimism the economy can avoid a recession.
The U.S. currency yesterday rose against the yen and climbed versus the euro as traders pared bets the Fed will slash its benchmark rate as much as 0.75 percentage point on March 18. The yen sank versus major currencies as the measures fueled carry-trade purchases of higher-yielding assets using cheap loans in Japan.
The U.S. currency traded at 103.45 yen. The dollar traded at $1.5335 per euro.
The euro set a record against the dollar as European Central Bank said it sees ``no room'' to cut rates.
The yen fell versus all of the 16 most-traded currencies yesterday as a surge in stocks encouraged investors to put on carry-trade bets funded in Japan. The Standard & Poor's 500 index rose 3.7 percent.
South Africa's rand and New Zealand's dollar rallied the most against the yen, South Africa's main rate is 11 percent, and New Zealand's is 8.25 percent.
The Swiss franc fell to 1.0336 per dollar. Switzerland's main rate is 2.75 percent.
The Fed will lend up to $200 billion of Treasuries to financial institutions in exchange for mortgage-backed securities. The Fed coordinated the effort with central banks in Europe and Canada to inject up to $45 billion into their banking systems. The U.S. central bank has already reduced its benchmark by 2.25 percentage points since September to keep a housing slump from triggering a recession.
The U.S. trade deficit grew to $58.2 billion in January from $57.9 billion in December.
Commodities
Oil
Crude oil retreated from a record in New York as the dollar gained after the Federal Reserve said yesterday it would lend up to $200 billion of Treasury securities in exchange for debt.
The U.S. currency yesterday rose the most in six months against the yen and climbed from a record low versus the euro. The Federal Reserve's moves are the latest effort to help financial markets that are curtailing credit available to homeowners and companies.
Crude oil for April delivery fell as much as 40 cents to $108.32 a barrel
Yesterday, futures rose 85 cents to settle at a record close of $108.75 a barrel.
Brent crude for April settlement yesterday rose $1.09 to close at a record $105.25 a barrel. Futures earlier reached price of $105.82 a barrel.
The euro rose to $1.5495 against the dollar yesterday, after European Central Bank said they doesn't see any way to lower borrowing costs. The dollar was trading at $1.5335 per euro.
Ministers from the 13-nation Organization of Petroleum Exporting Countries have said the drop in the dollar against currencies such as the euro and yen justifies higher oil prices.
The International Energy Agency cut its forecast for 2008 global oil demand for a second month as record prices curbed consumption in some parts of the world. The agency reduced its forecast by 80,000 barrels a day to 87.54 million barrels a day.
OPEC left production targets unchanged on officials met in Vienna. The group pumped 32.1 million barrels a day in February, down by 120,000 barrels a day from revised January levels.
Gasoline for April delivery rose 1.12 cents to a record close of $2.7261 a gallon. Futures touched $2.7435.
Gold
Gold futures rose after oil surged to a record, boosting the appeal of the precious metal as a hedge against inflation. Silver fell.
Gold futures for April delivery rose $4.20 to $976 an ounce.
Gold's gains were limited as the dollar pared losses after dropping to an all-time low of $1.5495 against the euro.
The dollar rose against the euro and a weighted index of six major currencies after the Federal Reserve announced it would lend up to $200 billion of Treasuries to help ease the credit crisis.
Silver futures for May delivery fell 2.2 cents to $19.763 an ounce. On March 6, the metal reached $21.325, the highest since October 1980. Silver rose 15 percent in 2007.
The Federal Reserve struggling to contain a crisis of confidence in credit market, for the first time lend Treasuries in exchange for debt that includes mortgage-backed securities.
The Fed said in a statement in Washington it plans to make up to $200 billion available through weekly auctions and the program may be increased as needed. The Fed coordinated the effort with central banks in Europe and Canada to inject up to $45 billion into their banking systems.
U.S. stocks rallied on optimism the initiative will help avert a wider credit crunch.
Today's steps indicate the Fed is increasingly concerned about the investor exodus from mortgage debt, which threatens to deepen the housing contraction and the economic slowdown. The program is aimed at countering a decline in liquidity in financial markets around the world, and comes after signs of increasing stress in U.S. mortgage securities.
The Standard & Poor's 500 stock index jumped to 1,320.65. Ten-year Treasury yields climbed to 3.61 percent.
The Fed said it will lend Treasuries for 28-day periods in return for debt. The loans will be made under the Term Securities Lending Facility.
Officials ``will consult with primary dealers on technical design features'' on the new resource before the first weekly auction is held on March 27.
The Fed holds about $713 billion of Treasuries on its balance sheet.
The resource allows dealers to switch debt that is less liquid for U.S. government securities that are easily tradable. They anticipated that the primary dealers will lend the Treasuries on to other firms in return for cash. That will help the dealers finance their balance sheets.
They will discount the value of the assets submitted in exchange for Treasuries, though the details are still under discussion. Analyst said the so-called haircuts may be around 10 percent on residential mortgage-backed securities.
The Fed increased its currency swap line with the European Central Bank to $30 billion, from $20 billion, and one with the Swiss National Bank to $6 billion, from $4 billion.
The ECB said today it will lend banks up to $15 billion for 28 days and the SNB announced a similar auction of up to $6 billion. The Bank of England will offer $20 billion of three- month loans March 18 and hold another auction April 15. The Bank of Canada plans to buy $4 billion of securities for 28 days.
The TSLF becomes the second new tool introduced by the Fed in three months. In December, the Fed set up the so-called Term Auction Facility to loan funds to banks in exchange for a wide variety of collateral, including mortgage debt.
Last week, the Fed increased the size of its planned TAF auctions, to $100 billion this month from a previously announced $60 billion. The central bank also said March 7 that it would make $100 billion available through repurchase agreements, where the Fed loans cash in return for assets including mortgage debt.
Fed want to increase liquidity and the regular functioning of markets, rather than determine appropriate prices for securities and it directly would affect prices.
Stock Market
U.S. stocks rallied the most in five years after the Federal Reserve said it will pump $200 billion into the financial system to shore up banks battered by mortgage- related losses.
Citigroup Inc., Bank of America Corp. and Fannie Mae led the Standard & Poor's 500 Financials Index to its biggest gain in eight years on expectations the Fed's move will spur lending. Washington Mutual Inc. climbed on speculation the largest savings and loan will get a cash infusion from an outside investor. All 10 industry groups in the S&P 500 rose except for health-care companies, which fell after WellPoint Inc. cut its earnings forecast.
The S&P 500 added 47.28 points to 1,320.65. The Dow Jones Industrial Average surged 416.66 to 12,156.81. The Nasdaq Composite Index increased 86.42 to 2,255.76.
The S&P 500 rebounded from the lowest level as 479 of its members advanced. Yields on two-year Treasury notes gained, as the Fed's move to relieve the credit crisis prompted investors to dump holdings of government debt. The dollar rose the most in six months against the yen and rebounded from a record low versus the euro.
Citigroup rallied $1.80 to $21.49. Bank of America climbed $2.41 to $37.72.
Financial shares in the S&P 500 gained 7.4 percent as a group and rebounded from the lowest level since May 2003.
Fannie Mae added $2.19 to $22. Freddie Mac rose $2.77 to $20.16. Countrywide Financial Corp. climbed 75 cents to $5.11.
Washington Mutual added $1.84 to $11.88.
The Fed said it plans to lend Treasuries in exchange for mortgage-backed securities and other debt that has plunged in value as homeowners defaulted on their payments.By lending Treasuries in exchange for mortgage-backed securities, the Fed will allow banks to switch debt that is less liquid for bonds that are easily tradable. Fed also told on condition of anonymity that the program may be increased as needed. The move may also allow the central bank to cut interest rates less drastically than previously expected, leading to lower inflation. Previous easing by the Fed failed to boost stocks.
The central bank subsequently lowered the federal funds rate at which banks led to each other from a five-year high of 5.25 percent to 3 percent in five steps. The discount rate at which banks can borrow from the Fed declined to 3.5 percent from 6.25 percent.
Bear Stearns rose 67 cents to $62.97, main share holder said he may add cash to his holdings. Bear Stearns erased an earlier decline of as much as 11 percent that was spurred by speculation the company lacks sufficient access to capital.
Exxon Mobil Corp. rallied $4.22 to $86.68. Energy shares in the S&P 500 rose 4.6 percent as a group. Gasoline pump prices in the U.S. climbed to an all-time high of $3.227 a gallon and may reach $4 before summer because of record crude-oil prices.
Nucor Corp. surged $4.12 to $67.42. Nucor said it may ``significantly'' boost exports this year as overseas demand rises and a weaker dollar increases the attractiveness of U.S. supplies.
Weyerhaeuser Co. climbed $2.81 to $61.80 after UBS AG raised its recommendation on the stock to ``buy'' from ``neutral'' saying risk from the housing slump is ``starting to be priced in as market expectations have become more realistic.''
Stocks also rose after the Commerce Department reported the January U.S. trade deficit was smaller than forecast. The gap grew 0.6 percent to $58.2 billion. Exports increased 1.6 percent to the highest level ever.
Texas Instruments Inc. lost 89 cents to $28.76. They cut its sales and profit forecasts because of slowing handset demand.
Health-care companies in the S&P 500 lost 0.2 percent as a group. WellPoint fell $18.66 to $47.26 after cutting profit forecast and saying weakness in the U.S. economy has limited enrollment gains.
Aetna Inc. declined $3.86 to $42.65. Humana Inc. lost $15.32 to $47.38.
The economic slowdown in the U.S. will be deeper and the recovery weaker than previously forecast. The world's largest economy will grow at an annual rate of 0.3 percent
The Russell 2000 Index climbed 4.6 percent. The Dow Jones Wilshire 5000 Index rose 3.6 percent to 13,286.61.
Currencies
The dollar gain a second day against the yen after the Federal said it will extend $200 billion of credit to financial institutions to spur lending, boosting optimism the economy can avoid a recession.
The U.S. currency yesterday rose against the yen and climbed versus the euro as traders pared bets the Fed will slash its benchmark rate as much as 0.75 percentage point on March 18. The yen sank versus major currencies as the measures fueled carry-trade purchases of higher-yielding assets using cheap loans in Japan.
The U.S. currency traded at 103.45 yen. The dollar traded at $1.5335 per euro.
The euro set a record against the dollar as European Central Bank said it sees ``no room'' to cut rates.
The yen fell versus all of the 16 most-traded currencies yesterday as a surge in stocks encouraged investors to put on carry-trade bets funded in Japan. The Standard & Poor's 500 index rose 3.7 percent.
South Africa's rand and New Zealand's dollar rallied the most against the yen, South Africa's main rate is 11 percent, and New Zealand's is 8.25 percent.
The Swiss franc fell to 1.0336 per dollar. Switzerland's main rate is 2.75 percent.
The Fed will lend up to $200 billion of Treasuries to financial institutions in exchange for mortgage-backed securities. The Fed coordinated the effort with central banks in Europe and Canada to inject up to $45 billion into their banking systems. The U.S. central bank has already reduced its benchmark by 2.25 percentage points since September to keep a housing slump from triggering a recession.
The U.S. trade deficit grew to $58.2 billion in January from $57.9 billion in December.
Commodities
Oil
Crude oil retreated from a record in New York as the dollar gained after the Federal Reserve said yesterday it would lend up to $200 billion of Treasury securities in exchange for debt.
The U.S. currency yesterday rose the most in six months against the yen and climbed from a record low versus the euro. The Federal Reserve's moves are the latest effort to help financial markets that are curtailing credit available to homeowners and companies.
Crude oil for April delivery fell as much as 40 cents to $108.32 a barrel
Yesterday, futures rose 85 cents to settle at a record close of $108.75 a barrel.
Brent crude for April settlement yesterday rose $1.09 to close at a record $105.25 a barrel. Futures earlier reached price of $105.82 a barrel.
The euro rose to $1.5495 against the dollar yesterday, after European Central Bank said they doesn't see any way to lower borrowing costs. The dollar was trading at $1.5335 per euro.
Ministers from the 13-nation Organization of Petroleum Exporting Countries have said the drop in the dollar against currencies such as the euro and yen justifies higher oil prices.
The International Energy Agency cut its forecast for 2008 global oil demand for a second month as record prices curbed consumption in some parts of the world. The agency reduced its forecast by 80,000 barrels a day to 87.54 million barrels a day.
OPEC left production targets unchanged on officials met in Vienna. The group pumped 32.1 million barrels a day in February, down by 120,000 barrels a day from revised January levels.
Gasoline for April delivery rose 1.12 cents to a record close of $2.7261 a gallon. Futures touched $2.7435.
Gold
Gold futures rose after oil surged to a record, boosting the appeal of the precious metal as a hedge against inflation. Silver fell.
Gold futures for April delivery rose $4.20 to $976 an ounce.
Gold's gains were limited as the dollar pared losses after dropping to an all-time low of $1.5495 against the euro.
The dollar rose against the euro and a weighted index of six major currencies after the Federal Reserve announced it would lend up to $200 billion of Treasuries to help ease the credit crisis.
Silver futures for May delivery fell 2.2 cents to $19.763 an ounce. On March 6, the metal reached $21.325, the highest since October 1980. Silver rose 15 percent in 2007.
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