6 Aug 2008

Fed holds rate, Wall St rallies

9:10 am on 6 August 2008

Stocks in the United States soared on Tuesday after the Federal Reserve signaled that it is in no rush to raise interest rates.

The Dow rose more than 300 points and the S&P recorded their best day in four months.

As expected, the Fed left benchmark lending rates unchanged at 2%.

Oil prices fell more than 2%, closing below $US120 per barrel for the first time in three months.

Financial shares rose. So did shares of Procter & Gamble Co, the world's largest consumer products maker, after the company posted a stronger-than-expected quarterly profit. Boeing rose 6.3% to $US65.20.

Early in the session, data from the Institute for Supply Management showing that the U.S. service sector shrank less than expected in July helped set the positive tone in the stock market.

The Dow Jones industrial average surged 331.21 points, or 2.94%, to 11,615.36.

Standard & Poor's 500 Index jumped 35.59 points, or 2.85%, at 1,284.60. The Nasdaq Composite Index rose 64.27 points, or 2.81%, to 2,349.83.

Trading was moderate on the New York Stock Exchange, with about 1.4 billion shares changing hands. About 2.33 billion shares were traded on the Nasdaq.

European stocks also up

European stocks gained on Tuesday due a further drop in oil prices.

The FTSEurofirst 300 index of top European shares closed up 2.6% at 1,182.31 points. However, the index is down 22% on the year to date.

Around Europe, Germany's DAX index gained 2.7% and France's CAC 40 added 2.5%.

In Britain, the FTSE 100 index closed up 134.3 points, or 2.5%, at 5,454.5. However, index is still down 16% so far this year.

Shares in Royal Bank of Scotland gained 7.2%, Barclays was up 8.8%, HBOS soared 12% and Lloyds TSB rose 10.7%.

Swiss Re, the world's largest reinsurer, agreed to buy Barclays' life assurance portfolio for £753 million in cash.

The US Federal Reserve announced at 1815 GMT that it was keeping interest rates unchanged at 2%.

The Bank of England is due to announce its rate verdict on Thursday and is also expected to stay on hold. The current rate is 5%.

NZ & Australian markets lower

The NZX Top 50 index closed down 23 points on Tuesday, to 3295 on turnover of $74 million.

Fletcher Building was up 7 cents to $6.35, Sky Television up 1c to $4.67, Telecom down 9c to $3.67 and The Warehouse down 2c to $3.40.

In currency markets, at 5.08pm the dollar was trading at US72.57 cents, 78.51 Australian cents, 37.04 pence, 78.55 yen and 0.4675 euro. The Trade Weighted Index stood at 65.52.

The Australian share market also closed lower. The S&P/ASX200 index was 67.3 points, or 1.38%, lower at 4820.4, while the broader All Ordinaries shed 75.6 points, or 1.52% to 4882.

At 1615 AEST on the Sydney Futures Exchange, the September share price index contract was 48 points lower at 4813, on a volume of 36,199 contracts.

The banks were stronger, with ANZ adding 56c to $A17.01, National Australia Bank putting on 55c to $A24.75, Commonwealth Bank gaining $A1.57 to $A41.25 and Westpac climbing 82c higher to $A21.84.

Japanese shares close lower

Japanese share prices closed down 0.14%.

The Nikkei-225 index slipped 18.52 points to end at 12,914.66 on the Tokyo Stock Exchange. The broader Topix index of all first-section shares declined 0.54 points or 0.04% to 1247.71.