JEDDAH: Global stock markets posted solid gains yesterday, with investors buoyed by prospects for global interest rate cuts to help the world economy resist a slide into recession. Oil prices jumped nearly 9 percent to $68 a barrel yesterday as global markets rallied and the dollar fell.

US crude rose $5.48 to $68.21 a barrel by 12:28 p.m. EDT (1628 GMT), after hitting a session high of $68.91. London Brent crude surged $5.84 a barrel to $66.13.

The Federal Reserve has slashed a key interest rate by half a percentage point as it seeks to revive an economy hit by a long list of maladies stemming from the most severe financial crisis in decades.

The Fed yesterday reduced its target for the federal funds rate, the interest banks charge on overnight loans, to 1 percent, a low last seen in 2003-2004. The funds rate has not been lower since 1958, when Dwight Eisenhower was president. The cut marked the second half-point reduction in the funds rate this month. The Fed slashed the rate by that amount in a coordinated move with foreign central banks on Oct. 8.

In a brief statement explaining yesterday’s action, the Fed said the “intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and business to obtain credit.” While many economists believe the US has already fallen into a recession, they think the aggressive efforts by the Fed to cut rates and take other actions to unfreeze credit markets will keep the country from plunging into a prolonged and deep downturn. The Fed also announced temporary “swap” lines of credit with central banks in Brazil, Mexico, South Korea and Singapore to help those countries ease a credit squeeze.

The US central bank said it would be providing up to $30 billion in liquidity to Banco Central do Brasil, Banco de Mexico, the Bank of Korea and the Monetary Authority of Singapore.

The Dow and the S&P 500 fell yesterday in highly volatile trade after the Fed cut rates. The Dow Jones Industrial Average was down 69.85 points, or 0.77 percent, at 8,995.27. The Standard & Poor’s 500 Index was down 7.40 points, or 0.79 percent, at 933.11. The Nasdaq Composite Index was down 0.82 point, or 0.05 percent, at 1,648.65.

Talking about the recent volatility in the stock market, Habib F. Faris, CEO and managing director of FinaVestment Ltd., London, said: “Investors all over the globe are squaring their holdings as they believe stocks could go lower because the financial system is flawed. This rampant selling coupled with fear and uncertainty are lethal in a formula and could potentially lead to a prolonged recession with all its long-term implications.

“It is, I believe, partly psychological, given the worst scenarios of the financial markets performance and the predictions of a global economic meltdown that led anxious investors to lose confidence and opt to get out and fast. From here, we should pick up unambiguous signals for the next direction!” The Saudi stock market, the largest in the Arab world, closed lower amid volatile trading yesterday as most other Gulf bourses ended higher on the back of a strong rebound by global shares.

The All-Share Tadawul Index (TASI) reversed course to finish down 1.5 percent at 5,537.82 points after opening more than four percent higher.

It was dragged down by the market leader, petrochemicals giant Saudi Basic Industries Corp. (SABIC) that closed down 5.6 percent after initially rising. The leading petrochemicals sector was down 3.7 percent while banks dropped 1.3 percent.

The TASI, which operates from Saturday to Wednesday, finished the week down 10.1 percent and has shed a massive 25.8 percent in October. The index is 49.8 percent lower from the end of last year. Over SR7.32 billion worth of shares changed hands yesterday.

Commenting on Saudi Arabian Monetary Agency (SAMA) Gov. Hamad Al-Sayari’s assurance that no Saudi bank faces liquidity problem, John Sfakianakis, chief economist at SABB (The Saudi British Bank), said the statement by SAMA governor is important in bringing additional confidence which will hopefully be translated into lower money market rates.

“Saudi Arabia’s banking system is solid. Oil prices have declined but last week they were nearly at the same price level as 2007. Oil prices have fallen but the purchasing power of the state has increased due to the stronger dollar. Fiscal and current account surpluses will be maintained this year. In the event that oil prices in 2009 average below $55, budgetary funding will have to be covered from non-recurrent sources,” Sfakianakis said.

Four of the remaining Gulf bourses rose while Kuwait and Dubai dropped slightly.

The Kuwait Stock Exchange, the second largest Arab bourse, made a strong comeback at the close after sliding in initial trades.

The KSE Index, which was down 2.6 percent at one stage, finished just 0.1 percent lower at 9,676.30 points.

Trading in Gulf Bank, troubled by losses from derivatives deals, remained suspended for the fourth day running.

The Dubai Financial Market, which opened more than four percent higher, reversed course just before the finish and ended down 0.5 percent at 2,917.12 points. Real estate developer and market leader Emaar, which rose 6.5 percent at one stage, ended down 1.5 percent.

The Doha Securities Market jumped 5.14 percent at the close, with all sectors sharply higher, but was still below the key 7,000-point mark.

Abu Dhabi Securities Exchange closed up 2.2 percent, with the key real estate sector 3.5 percent higher and banks adding 1.5 percent.

The small Muscat Securities Market gained 2.2 percent, while the Bahrain Stock Exchange rose 2.1 percent.

Markets in Europe soared, with several jumping 9.0 percent as spirits lifted and recession fears faded.

In London, the FTSE 100 index rose 8.05 percent to 4,242.54 points while in Paris the CAC gained 9.23 percent to 3,402.57 points.

By contrast, the Frankfurt DAX fell 0.31 percent to 4,808.69, dragged down by Volkswagen.

Earlier yesterday, Tokyo shares rocketed 7.74 percent. Sydney rose 1.3 percent, Mumbai was up 0.4 percent and Hong Kong finished 0.8 percent higher.

The euro rose strongly against the dollar yesterday. In late European trade yesterday, the euro was at 1.2877 dollars, up sharply from 1.2767 dollars late in New York on Tuesday, when it had briefly hit 1.2328 —- the lowest point since April 2006. The dollar slipped to 97.74 yen from 98.59 yen.

On the London Bullion Market, the price of gold rose to $764 an ounce from $730.50 late on Tuesday.

— With input from agencies