1 Jan 2009

US share prices rise

4:32 pm on 1 January 2009

Share prices on Wall Street rose slightly on the last day of trading of the worst year since the Great Depression.

The market rose on Wednesday as investors bet that fresh initiatives from Washington will help stave off a deep recession.

The Dow Jones industrial average rose 110.15 points, or 1.27%, to 8,778.54. The Standard & Poor's 500 Index gained 12.69 points, or 1.42%, to 903.33. The Nasdaq Composite Index added 26.33 points, or 1.70%, to 1,577.03.

On Tuesday, the US Federal Reserve provided clarity on its plan to reduce mortgage costs and set a goal to buy $US500 billion in mortgage-backed securities by mid-2009, a move that surprised analysts in its aggressiveness.

The Fed move came a day after lawmakers gave an additional $US6 billion to General Motors and its financing arm, GMAC, in another effort to stabilize the auto industry and prevent staggering job losses.

For the year, the Dow fell 33.8%, for its bleakest year since 1931; the S&P skidded 38.5%; and the Nasdaq posted its worst year ever, with a 40.5% drop.

A string of financial disasters culminating in the collapse of Lehman Brothers in the middle of the night in September precipitated the third biggest percentage loss ever for the Dow industrials and the broad S&P 500.

By 20 November the S&P had hit an 11-year low, destroying more than a decade of returns for many Americans and wiping out memories of record highs reached just 13 months earlier.

The bursting of the housing bubble began the long chain of events culminating in the worst credit crisis in a generation.

As the shortage of credit seeped into the broader economy, unemployment rose and consumer spending dived.

Only two stocks in the Dow ended higher for the year, Wal-Mart Stores and McDonald's.

Investors were betting that discounters like Wal-Mart and inexpensive fast-food restaurants would be the few places consumers spend scarce cash as unemployment soared and the economy crumbled.