While you were sleeping: Fed to keep rates low for longer; stocks rise, dollar falls

Nov. 5 (BusinessWire) – The Federal Reserve reiterated that it would keep interest rates near zero for an extended period to help underpin an economy still trying to shake off recession, with rising jobless and subdued inflation. Stocks rose, Treasuries rallied and the greenback fell.

“Household spending appears to be expanding, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit,” the Federal Open Market Committee said in a statement in Washington.

The FOMC kept the benchmark overnight lending rate at between zero and 0.25%, a level it describes as “exceptionally low.” The Fed will purchase US$1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt by the end of March 2010.

The Dow Jones Industrial Average climbed 1.4% to 9908.24 and the Standard & Poor’s 500 gained 1.3% to 1058.96. The Nasdaq Composite rose 0.9% to 2075.05.

Merck & Co. rose 6.9% to US$32.77, leading the Dow higher, after saying the acquisition of Schering-Plough Corp. will lift earnings for the next four years and cut costs at least $3.5 billion a year starting in 2011.

Aetna Inc. gained 6.8% to US$28.42 and Cigna Corp. rose 6.2% to US$30.07 on speculation success by Republicans in U.S. elections will make it harder for the Obama administration to push through health-care reform.

Ambac Financial Group jumped 39% to US$1.54 after the world’s second-largest bond insurer posted a third-quarter profit of US$2.19 billion. MBIA Inc., its larger rival, gained 11% to US$4.55.

Walt Disney gained 3% to US$28.45 after gaining Chinese approval to build a theme park in Shanghai.

The VIX, which measures stock-market volatility and is known as Wall Street’s `fear gauge,’ fell 5.2% to 27.30.

Warren Buffett’s Berkshire Hathaway rose 1.9% to US$102,350 after Standard & Poor’s put the AAA rated investment company on Creditwatch with negative implications after it agreed to buy railroad Burlington Northern Santa Fe Corp. for US$26 billion.

“This transaction will decrease the liquidity and capital adequacy of the insurance operations” of Berkshire, S&P said.

Alcoa Inc., the aluminium producer, gained 1.4% to US$12.81 as prices of metals rose.

Gold traded at US$1,095.6 an ounce, having earlier touched a record of US$1,096.50 as the dollar weakened.

Copper futures for December delivery gained 1.6% to US$3.003 a pound on the New York Mercantile Exchange.

Crude oil advanced after U.S. Energy Department figures showed U.S. stockpiles fell last week and the greenback fell.

Inventories of crude fell 3.94 million barrels to 335.9 million last week, against expectations of an increase.

Crude oil for December delivery rose 0.9% to US$80.31 a barrel in New York.

The U.S. dollar fell to a one-week low against the euro after the fed’s statement that it would keep interest rates low for an extended period.
The dollar fell to $1.4885 per euro from $1.4724. The euro rose to 135.15 yen from 133.01. The greenback traded at 90.78 yen, up from 90.33.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.8% to 75.67.

U.S. Treasuries weakened after the Fed said they’re more optimistic about the outlook for the world’s biggest economy.

The yield on the benchmark 10-year bonds rose 8 basis points to 3.55% and the yield on 30-year Treasuries climbed about 10 basis points to 4.43%.

Shares in Europe rallied ahead of the Fed’s statement and signs that the recovery in the U.S. economy is taking hold.

The Dow Jones Stoxx 600 rose 1.8% to 239.13, paced by gains in banks.

Bank of Ireland soared 25% and Allied Irish Banks climbed about 20%. Societe Generale rose 4.6% amid strong results from its French retail banking unit.

Among national benchmarks, the U.K.’s FTSE 100 rose 1.4% to 5107.89, Germany’s DAX 30 gained 1.7% to 5444.23 and France’s CAC 40 rose 2.4% to 3670.33.

Helping stoke equity markets, data from ADP Employer Services showed companies in the U.S. cut an estimated 203,000 jobs last month, the smallest decline in more than a year.

Still, U.S. services industries grew at a slower-than-expected pace in October.

The Institute for Supply Management’s index of non- manufacturing businesses fell to 50.6 last month from 50.9 in September.

(BusinessWire)