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Wednesday
Nov302011

Dow Jones Industrials Soar on Central Bank Action

Hemera/Thinkstock(NEW YORK) -- U.S. stocks soared Wednesday morning after the Federal Reserve in a surprise move cut the cost of emergency dollar funding for European banks as part of a globally coordinated central-bank effort to ease the sovereign-debt crisis that has roiled markets for months.

The Fed said in a statement Wednesday that it slashed the so-called dollar overnight index swap rate to 50 basis points from 100 basis points, or 1 percent, until Feb. 1, 2013.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the central banks said in a joint statement.

The effort is being coordinated with the European Central Bank, the Bank of Canada, the Bank of England, Bank of Japan, and Swiss National Bank.

The Dow Jones industrial average surged 401 points, or 3.4 percent, at 10:30 a.m. in New York.

“Obviously, these moves are designed to increase the flow of dollar liquidity to European banks, which are struggling to attract short-term funding because of questions about their exposure to potential losses on holdings of European sovereign bonds,” said Paul Ashworth, chief U.S. economist at Capital Economics.

The central bank move is designed to free up credit, which has tightened as countries in Europe attempt to get their debt under control and stave off a possible breakup of the euro zone.

Markets in Europe rallied, with the German DAX rising 4.2 percent and  UK’s FTSE up 2.9 percent.

U.S. markets were also boosted by a report from payroll processor ADP that companies added 206,000 jobs in November, more than twice the number that was expected.

Copyright 2011 ABC News Radio







ABC News Radio