Fed announces $200B in help for markets
NEW YORK » The Fed promised a $200 billion booster shot for ailing markets -- and Wall Street answered with its biggest bounce in more than five years.
The Dow Jones industrials shot up more than 416 points, the biggest single-day point gain since July 2002, after the Federal Reserve announced the move as part of a worldwide effort to help struggling banks and mortgage providers.
Hoping to ease the credit crisis, the Fed -- acting with the European Central Bank, the Bank of Canada and the Swiss National Bank -- agreed to loan investment banks money in exchange for debt, including slumping mortgage-backed securities.
The idea is to create a market for assets that investors have recently been too scared to buy.
After a series of hefty losses in stocks, the market hopes the central banks' decision yesterday might be more effective than previous moves -- like rate cuts, which had led to initial stock pops that later fizzled.
"It's not just a rate cut. I think it's a very creative way to do financing," said Anthony Conroy, managing director and head trader for BNY ConvergEx Group.
Investors certainly seemed to like it: The Dow rose 416.66, or 3.6 percent, to 12,156.81. It was the biggest point jump in the Dow since a 447-point rise on July 29, 2002, and its widest one-day percentage gain since March 2003.
The Dow had lost more than 500 points in the past three sessions and is still down about 2,000 points from its October 2007 record high.
Broader stock indicators also soared. The Standard & Poor's 500 index rose 47.28, or 3.7 percent, to 1,320.65, while the Nasdaq composite index surged 86.42, or about 4 percent, to 2,255.76. The Russell 2000 index of smaller companies rose 29.84, or 4.63 percent, to 673.81.
Advancing issues surpassed decliners by more than 5-to-1 on the New York Stock Exchange. Consolidated volume came to 5.17 billion shares, up sharply from 4.15 billion shares Monday.
It was the S&P's biggest point gain since April 5, 2001, and the Nasdaq's biggest since May 8, 2002.
The latest step by the central banks was seen as a direct lifeline to investment banks, which previously couldn't borrow beyond already established Fed liquidity plans.
The plan basically allows Wall Street's biggest institutions to put up troubled assets as collateral for loans, use the new capital to make money in the market, and then pay back the loan up to 28 days later.
Though eventually banks would be forced to take the troubled mortgage-backed debt back on their books, the plan still takes short-term pressure off them.
The Fed's announcement overshadowed a report from the Commerce Department that showed the United States' trade deficit grew larger in January. The latest snapshot of the economy showed that the trade gap increased to $58.2 billion -- the highest since November.
The primary reason behind the widening trade deficit is high oil prices. Crude rose as high as $109.72 in premarket trading on the New York Mercantile Exchange before ending at a new settlement record of $108.75. The weak dollar has contributed to oil's rally from $87 a barrel in January.