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US stocks zigzag on rate cut announcement

Latest update : 2008-10-08

US stocks fell, then rose, then fell again after the announcement that interest rates were being cut. European markets closed with heavy losses of between 5% and more than 6%.

US stocks zigzagged on Wednesday after the Federal Reserve joined a global coordinated interest rate cut in an extraordinary bid to ease credit and calm roiling markets.

The Dow Jones Industrial Average dropped 146.55 points (1.55 percent) to 9,300.569 around 1507 GMT, after plummeting 149.34 points in the first three minutes of trade and rebounding.

The tech-heavy Nasdaq composite index shed 13.10 points (0.75 percent) to 1,741.78 and the Standard & Poor's 500 index fell 11.26 points (1.13 percent) to 984.97.

In opening trade, the Nasdaq had lost 1.95 percent and the S&P 500 lost 1.78 percent before they rebounded then fell again.

The Dow blue-chip index had slumped 5.11 percent Tuesday, a day after falling below 10,000 for the first time in four years, amid a deepening worldwide financial crisis that has virtually frozen the credit flows economies need to function.

The Fed and five other major central banks on Wednesday launched an exceptional joint effort to battle the crisis, slashing interest rates on three continents to bolster battered markets.

The Fed, the European Central Bank, the Bank of England and peers in Canada, Sweden and Switzerland lowered key rates by a half percentage point, sending their strongest signal of support since just after the September 11, 2001 terror attacks in the US.

The rate cuts were supported by the Bank of Japan. China's central bank said it would lower its main interest rate on one-year loans, its second cut since September 15.

The United States welcomed the concerted action.

"It is important and helpful that central banks are working in a coordinated way to deal with stress in the financial system," White House spokesman Tony Fratto said.

Trading on Wall Street was volatile as frantic investors digested the rate cut actions.

"The big question now is, will the buying interest be sustained or will it be seen as another opportunity to sell into strength, fueled by the thinking that the rate cut still isn't enough to change the market tone?" asked Patrick O'Hare, analyst at

"Regardless of how today plays out, the rate cut is another supportive measure that raises the long-term appeal of equities at these depressed levels. That last point could get washed away in another fear-based trade today," he said.

"Ultimately, though, it should be held in trust by investors as a positive move for the economy and the capital markets."

Al Goldman at Wachovia Securities noted that confidence was the number-one problem in the market.

"This rate cut will not be an overnight cure-all but is a strong positive in the right direction," Goldman said.

"The good news is that the healing process has begun," he added.

Another factor lifting sentiment came from unexpected good news from the ailing housing sector, the epicenter of the global financial crisis.

Pending home sales surged by 7.4 percent in August from July, to their highest level since June 2007, the National Association of Realtors said.

Earnings season got underway late Tuesday with results from aluminum giant Alcoa that showed profits cut in half. Shares in Alcoa plunged 17.95 percent to 13.71 dollars.

Bank of America, a Dow component, shed 8.62 percent to 21.72. The leading US commercial bank, which announced it would raise 10 billion dollars in capital to shore up its balance sheet, priced the shares at 22 dollars.

Monsanto shares rose 5.34 percent to 78.14 after reporting annual net profit above market expectations and an improved outlook to 2012.

Bonds rose after falling on Tuesday. The yield on the 10-year US Treasury bond fell to 3.492 percent from 3.506 percent late Tuesday and that on the 30-year bond dropped to 3.995 percent from 4.027 percent. Bond yields and prices move in opposite directions.

Date created : 2008-10-08