LONDON, 20 September 2007 — Global equities surged yesterday, oil prices raced to another record high and the euro neared its best-ever level against the dollar as markets reacted to a hefty US interest rate cut.
Around the world, stock market investors cheered the Fed decision on Tuesday to cut the federal funds rate by a half-point to 4.75 percent to boost the flagging United States economy and ward off the global credit squeeze.
European stock markets soared yesterday following bumper gains overnight in New York and earlier in Tokyo as investors welcomed the US move, which was the first cut in the Fed’s benchmark rate in four years. “The general consensus was for a 25 basis point cut, even though some analysts were predicting a 50 basis point move,” said analysts at the Sucden brokerage in London. “As a result, stock markets rallied, helping commodity markets amid fresh optimism over the future of the US economy.” But the rate cut was bad news for the dollar. The European single currency hit an historic 1.3988 dollars on Tuesday and remained within striking distance of 1.40 dollars yesterday. In European late deals yesterday, the euro was trading at 1.3949 dollars. The dollar rose to 116.24 yen, from 116.05 yen.
New York oil prices - which had hit a record on Tuesday - surged to a new high of $82.51 yesterday with analysts saying the rate cut would help boost the world economy, which would in turn keep demand for oil high.
Elsewhere in London, gold prices surged to levels last seen in May 2005, settling at $725.15 per ounce in late European trading, as the precious metal was boosted by the weak dollar and runaway oil prices.
Wall Street rallied again yesterday after posting strong gains on Tuesday, with European and Asian markets also leaping into positive territory.
The Dow Jones Industrial Average climbed 0.82 percent to 13,851.81 at 1505 GMT, on the heels of a 335-point rally on Tuesday. The tech-heavy NASDAQ rose 0.96 percent to 2,677.08 and the broad-market Standard & Poor’s 500 index gained 1.05 percent to 1,535.70.
In London, the FTSE 100 index rose 2.81 percent to close at 6,460 points, in Paris the CAC 40 gained 3.27 percent to finish at 5,730.82 points while in Frankfurt the DAX rose 2.32 percent to 7,750.84 points.
In Asia, Tokyo surged almost 3.7 percent with the biggest points gain in five and a half years. As well as the move by the Fed, the Japanese market was also boosted by a decision by the Japanese central bank to refrain from hiking its own interest rates.
Among other Asian stock markets, Seoul closed 3.5 percent higher, Sydney added 2.6 percent and Mumbai soared by 4.17 percent to a new record close above 16,000 points. Hong Kong share prices also finished at a record high, winning almost 4.0 percent in value.
Investor sentiment is boosted by lower interest rates because they cut loan repayments for companies and therefore help to lift profits. They also boost consumers’ disposable incomes. Global markets closely track changes to US borrowing costs because the United States is the world’s biggest economy.
