While you were sleeping: BusinessWire overnight wrap

Thursday 30th October 2008

The US Federal Reserve cut its benchmark interest rate by 50 basis points to 1% to revive the world's biggest economy and said "downside risks remain".

Figures this week are expected to show the US economy contracted 0.5% in the third quarter and probably slipped into recession in the current three months. The Fed's move is the second in a month after a coordinated reduction by central banks in Europe, the US and Asia earlier this month.

"The intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit," the Fed said in a statement. "Economic activity appears to have slowed markedly."

Stocks on Wall Street fluctuated between gains and declines after the rate cut as investors tried to gauge the likely success on lifting economic activity.

The Dow Jones Industrial Average fell 0.8% to 8990.96, the Standard & Poor's 500 Index slipped 1.1% to 930.09 and the Nasdaq Composite gained 0.5% to 1657.21.

Intel dropped 5.9% to US$14.97 and JPMorgan Chase fell 5% to US$35.71. General Motors gained 8.2% to US$6.76, Alcoa rose 3.4% to US$11.15 and Caterpillar advanced 3.4% to US$36.14.

Shorter-dated Treasury bonds rose on speculation the Fed isn't done cutting interest rates. The yield on two-year notes fell 9 basis points to 1.56%. Longer dated bonds fell on the prospects of more government auctions of debt to finance its rescue efforts.

Bloomberg News reported that the US Treasury and the Federal Deposit Insurance Corp. are considering a plan to provide at least $500 billion in government guarantees for troubled mortgages.

The US dollar declined to $1.2841 per euro from $1.2683 yesterday. The yen strengthened to 96.81 per dollar from 98.03. The ICE's Dollar Index, which tracks the US currency against the euro, pound, yen, Canadian dollar, the Swiss franc and the Swedish krona, fell 2.7%, the biggest slide in a decade.

The European Union may increase loans to member states in financial difficulty, according to EU Monetary Affairs Commissioner Joaquin Almunia. The cap on loans would be raised to 25 billion euros from 12 billion euros under his proposal.

Germany Chancellor Angela Merkel said her government will announce a "bold" package of additional measures to lift the economy. Norway's central bank cut its benchmark interest rate by 50 basis points 4.75%.

The People's Bank of China yesterday lowered its one-year lending rate to 6.66% from 6.93%. It also reduced the deposit rate to 3.6% from 3.87%. Speculation is rising that the Bank of Japan may lower rates after a newspaper report said it was weighing the move.

European stocks rose for a second day, led by financial companies such as Royal Bank of Scotland and Allianz. The Dow Jones Stoxx 600 Index jumped 7.2% to 213.72. Volkswagen AG slumped 45% after Porsche said it may make more stock in the automaker available. Daimler jumped 21% after Merrill Lynch reported the shares have become relatively cheap.

Commodity companies gains with prices of raw materials. Rio Tinto rose 19% and Royal Dutch Shell gained 12%.

Crude oil surged more than US$4 a barrel on optimism central bank rate cuts will revive economic growth and demand for fuel.

Oil for December delivery rose 7.6% to US$67.48 a barrel on the New York Mercantile Exchange. The price has slumped more than 50% from its record high US$147.27 in July.

Copper soared 10% as the Fed's rate cut stoked optimism about demand for the metal used by builders and plumbers. Copper futures for December delivery rose 19.35 cents to US$2.052 a pound in New York.

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