Fed credit plan sends stocks on wild ride
NEW YORK » Wall Street finished only slightly higher in an erratic session yesterday as investors remained unconvinced by a Federal Reserve plan to work with other central banks to alleviate the global credit crisis.
Investors erased a 272-point gain in the Dow Jones industrial average that followed the Fed's announcement of an agreement with the European Central Bank and the central banks of England, Canada and Switzerland to confront what it called elevated pressures in the credit markets.
The Fed said it will create a temporary auction facility to make funds available to banks and set up lines of credit with the European and Swiss central banks for additional resources.
This move is the biggest concerted liquidity injection since the aftermath of the 2001 terrorist attacks and helped boost investor sentiment a day after the Fed disappointed Wall Street with a quarter-point cut in interest rates.
Many investors had hoped for a half-point reduction to help the economy weather the credit and mortgage crises. But the Fed's latest salvo didn't appear to assuage all of Wall Street's concerns about the spike in bad debt that has caused the credit markets to tighten in recent months.
"There's still no certainty that we're out of the woods ... there's still a risk for recession," said Steven Goldman, chief market strategist at Weeden & Co. "We did get very positive news from the Fed and other banks chipping in to add liquidity into the system. But, the environment hasn't fundamentally changed that the worst is over for the financial system."
He pointed out that the biggest beneficiaries during a period of rate cuts are bank and brokerage stocks. However, the sector was under pressure yesterday as investors worried the institutions will take further writedowns after warnings from Bank of America Corp., Wachovia Corp. and PNC Financial Services Group Inc.
The Dow rose 41.13, or 0.31 percent, to 13,473.90. The blue-chip index had risen as much as 271.75 in early trading; and was down by as much as 111 points. The Standard & Poor's 500 index rose 8.94, or 0.61 percent, to 1,486.59.
The Nasdaq composite index rose 18.79, or 0.71 percent, to 2,671.14. The Russell 2000 index rose 5.44, or 0.71 percent, to 771.71.
Advancing issues led decliners by 4 to 3 on the New York Stock Exchange. Volume came to 1.59 billion shares.
Tuesday's stock plunge of 294 points had interrupted Wall Street's attempt at an end-of-the-year rally, but yesterday's performance brought the possibility of a market recovery back to the table. The Dow is up more than 6 percent since falling as low as 12,724.09 on Nov. 26.
The credit plan sent Treasury prices falling, because the prospect of more available credit lessened investors' need for the safe haven that government securities provide. The 10-year Treasury note's yield, which moves opposite the price, rose to 4.08 percent from 3.97 percent late Tuesday.
The dollar was mixed against other major currencies. Gold prices rose.
A barrel of light sweet crude jumped $4.37 to $94.39 a barrel on the New York Mercantile Exchange.