While you were sleeping: Fed keeps rates low, downturn abating

Thursday 30th April 2009

The Federal Reserve held its benchmark overnight interest rate in a range of zero to 0.25% and said there are signs that the US downturn is abating. The Fed plans to keep rates low for an extended period of time.

“Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower,” the Fed said in its statement.

US Treasuries fell, with the yield on the 10-year note climbing 7 basis points to 3.09%. Stocks rose on Wall Street in a broad-based rally. Walt Disney climbed 7.7% to US$21.01, Citigroup rose about 8% to US$3.12, Bank of America advanced 6.5% to US$8.68 and Wal-Mart Stores gained 4.1% to US$50.45.

The Dow Jones Industrial Average rose 2.1% to 8185.73 and the Standard & Poor’s 500 gained 2.2% to 873.64. The Nasdaq Composite gained 2.3% to 1711.94.

Movie company Dreamworks and Time Warner Inc. posted first-quarter earnings that beat estimates adding to a more upbeat earnings season for US companies. Of companies on the S&P 500 that have already posted earnings for the first quarter, 68% have exceeded estimates, according to Bloomberg data.

US gross domestic product shrank at a greater-than-expected 6.1% annual rate in the first quarter, after a 6.3% contraction in the fourth quarter of 2008.

Consumer spending, which makes up about 70% of the US economy, rose at a 2.2% annual pace in the first quarter, according to the Commerce Department.

At least six of the 19 biggest banks in the US will require additional capital, the Treasury’s stress tests has found, Bloomberg reported, citing people familiar with the tests. The government is likely to push for the bulk of the funds to come from converting preferred shares into ordinary stock.

The US dollar and the yen weakened against the euro on increased optimism the global economy has bottomed and the Fed gave its take on the US recession.

The dollar fell to $1.3286 per euro from $1.3149. The yen weakened to 129.74 per euro from 126.79. The yen traded at 97.65 from 96.45.

Crude oil gained with the rally in stocks and US Energy Department figures showed dwindling stockpiles of gasoline. Supplies of gasoline fell by 4.7 million barrels to 212.6 million last week, according to the department.

Crude oil for June delivery rose 1.2% to US$50.51 a barrel on the New York Mercantile Exchange.

Copper for three-month delivery rose 4.1% to US$4,358 a metric ton on the London Metal Exchange. Spot gold traded at US$899.2 an ounce.

The World Health Organization prepared to raise the pandemic threat level from swine flu to 5 as a baby died in Texas, the first death outside of Mexico. WHO said the virus is in nine countries and shows no signs of slowing.

In Europe, the Dow Jones Stoxx 600 rose 1.9% to 197.28 led by financials. Royal Bank of Scotland jumped 13%, Barclays gained 10% and ING Groep rose 10%.

The UK’s FTSE 100 rose 2.3% to 4189.59, Germany’s DAX Index gained 2.1% to 4704.56 and France’s CAC 40 rose 2.2% to 3116.94.

Lending to companies and households in the euro-zone fell 0.2% in March, which may add further weight to the region’s recession. The decline adds to a 0.1% drop in February, according to the European Central Bank.

Growth in the German economy will return in 2010, with a 0.5% expansion forecast by the nation’s Economy Ministry. That will be a recovery from the forecast 6% contraction this year, the worst since WWII.

Businesswire.co.nz

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