While you were sleeping: Overnight wrap 29/1/09

While you were sleeping: BusinessWire Overnight wrap

Jan. 29 – The U.S. Federal Reserve left its benchmark interest rate between zero and 0.25% and said it is willing to buy longer-term Treasury bonds if that was shown to help lift revive financial markets.

Shares rallied on Wall Street, with Citigroup and Bank of America leading gains among financial institutions as the Federal Open Market Committee said economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for some time.”

Since the committee’s last meeting in December, “industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending,” it said in a statement in Washington. “Furthermore, global demand appears to be slowing significantly.”

The Fed said there were signs of improvement in financial markets, partly reflecting government efforts to provide liquidity and shore up financial firms. “Nevertheless, credit conditions for households and firms remain extremely tight” and the committee expects “that a gradual recovery in economic activity will begin later this year,” it said

The Dow Jones Industrial Average rose 1.6% to 8304.4 and the Standard & Poor’s 500 Index advanced 2.4% to 865.88. The Nasdaq Composite, heavy with tech stocks, rallied 2.6% to 1543.64.

Citigroup rose 16% to US$4.11, leading the Dow higher, and Bank of America gained 11% to US$7.21. JPMorgan Chase climbed 8% to US$26.99 and American Express rose 5.8% to US$17.67.

The rally in stocks was broad-based. DuPont climbed 4.1% to US$24.20, Walt Disney advanced 3.9% to US$22.08 and Hewlett Packard rose 4% to US$37.35. Home Depot, down 22% in the past 12 months, rallied about 3% to US$22.78.

The Federal said it is prepared to buy longer-dated U.S. Treasuries if conditions warranted, in addition to the “large quantities of agency debt and mortgage-backed securities” it is already buying to support the mortgage and housing markets.

Treasuries fell amid disappointment the Fed didn’t spell out specific plans to buy government debt and speculation record-low interest rates and government spending would lift the U.S. economy out of its slump.

The yield on 30-year government debt jumped 11 basis points to 3.36%.

President Barack Obama renewed his appeal to the House of Representatives to approve the US$825 billion economic stimulus package, winning support from company executives including Honeywell chief executive David Cote, who backed his call for urgent action at a meeting in the White House.

The House has been debating the aid package amid concern from Republicans in the Congress that the proposal is flawed.

Meantime, newly appointed Treasury Secretary Timothy Geithner said his department was considering a range of options which would allow banks to remain private while receiving aid from the US$700 billion Troubled Asset Relief Program, or TARP, and would announce details of the plan soon.

The International Monetary Fund predicted global economic growth will grind close to a halt this year, with bank losses from more than US$2.2 trillion of toxic, mortgage related assets originated in the U.S. The estimate of bad assets exceeds the US$1.4 trillion estimate the IMF made in October.

Global growth may amount to just 0.5% this year, the IMF said.

Shares in Europe also gained, led by banks. The Dow Jones Stoxx 600 Index rose 3.2% to 194.32, with Lloyds Banking Group soaring 50%, Allied Irish Banks jumping 39% and Royal Bank of Scotland advancing 36%.

Deutsche Bank climbed 22%, BNP Paribas rose 21% and Barclays advanced 19%.

The FTSE 100 index rose 2.4% to 4295.2, the DAX 30 rose 4.5% to 4518.72 and the CAC 40 rose 4.1% to 3076.01.

The U.S. dollar and the yen fell against the euro as demand abated for the two currencies as a haven.

The dollar fell to $1.3104 per euro from $1.3160. The yen fell to 118.45 per euro from 117.08 yesterday. The yen was at 90.37 per dollar from 88.97.

Crude oil rose after a U.S. Energy Department report showed stockpiles of fuel unexpectedly fell last week. Gasoline inventories declined by 121,000 barrels to 219.9 million barrels, the department said.

Crude oil for March delivery rose 1.2% to US$42.07 a barrel on the New York Mercantile Exchange. Gold futures for April delivery fell 1.3% to US$890 an ounce in New York.

Copper futures for March delivery gained or 0.8% to US$1.496 a pound on the New York Mercantile Exchange.

(Businesswire)

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