US stocks soar after aid to banks

Published: Tuesday October 14, 2008

The Dow Jones industrial average gained 936 points yesterday, the biggest gain in the American stock market since the 1930s, as Wall Street continued to careen through the worst crisis in decades.

The surge came as governments and central banks took aggressive steps to unlock the flow of credit, ushering in a drastic reshaping of the banking industry even as doubts lingered about its long-term effects.

The 11.6 per cent gain in the broad Standard & Poor’s 500 index was the best single-day gain since 1939. It came after stocks suffered through their worst week since 1933. The Dow, which closed at 9,387.61, is now back to its levels from Thursday.

The rally stretched around the globe. In Paris and Frankfurt, stocks had their biggest one-day gains ever, rising more than 11 per cent.

Over the weekend, central banks flooded the financial system with billions of dollars in liquidity, throwing out the traditional financial playbook in favor of a series of moves that officials hoped would get banks lending again.

Yesterday morning also brought word that a financing deal for Morgan Stanley, the embattled investment bank, had finally gone through, a closely watched engagement that had become a gauge of confidence in the markets. Shares of Morgan Stanley rose 87 per cent.

Some investors said yesterday that stock investors may be holding off to see how the credit markets react. Still, they said that the gains in the Dow were too impressive to ignore.

“In this process you’re going to have up days, with five-plus percentage swings, and you’re going to see down days, five-plus percentage swings,” said Ryan Larson, head equity trader at Voyageur Asset Management in Chicago. “The key thing to take away from this is the key pieces of this puzzle, of this fix, are beginning to appear.”

Among other moves meant to restore confidence, Neel T Kashkari, an assistant Treasury secretary who was recently put in charge of the government’s plan for tackling the crisis, appeared in Washington yesterday to offer investors their first glimpse at the plan’s inner workings. And the US central bank, the Federal reserve, said it would make billions of dollars available to banks via swap lines with the Bank of England, the European Central Bank and the Swiss National Bank.

Some analysts said they still have their doubts. “It’s going to take actions more than words at this time, given the extreme distress that the money markets are in and the extreme distress that the equity markets were in,” said Douglas M Peta, a market strategist at J & W Seligman & Company.

“We’re extremely cautious,” Philippe Gijsels, senior equity strategist at Fortis Global Markets in Brussels, said. “This looks like the start of a typical bear-market rally.” He said measures that Group of 7 countries announced over the weekend had helped banking stocks, but that the market had been due for a rally after major indexes posted some of their worst declines last week.

“To repair the market will take some time,” he said. “The problem is that the financial problem has now become a real economic problem. The damage has been done.”


Source: Trinidad Guardian Newspapers
http://www.guardian.co.tt/business1.html