Wall Street Rises Sharply After Fed Unveils Plan New Plan

Wednesday, December 12th 2007, 9:08 am
By: News On 6

NEW YORK (AP) _ Wall Street shot higher Wednesday after the Federal Reserve announced a plan to work with other central banks to alleviate a global credit crisis. The Dow Jones industrials surged more than 120 points.

Investors upset by the Fed's quarter-point rate cut Tuesday were relieved by the central banks' commitment to help the economy weather the ongoing credit and mortgage crisis.

The Fed said it had agreed with the European Central Bank and the central banks of England, Canada and Switzerland to confront what it called elevated pressures in the credit markets. The Fed said it will create a temporary auction facility to make funds available to banks and set up lines of credit with the European and Swiss central banks for additional resources.

``I think it's certainly a strong measure to ease this credit crunch and I think it will encourage banks to use the discounted borrowing. If banks won't lend to each other, then at least the central banks will lend to them,'' said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

In midmorning trading, the Dow, which plunged 294 points Tuesday, rose 128.35, or 0.96 %, to 13,561.12. The blue chip index had risen as much as 271.75, or 2 %, in early trading.

Broader stock indicators also soared. The Standard & Poor's 500 index gained 17.84, or 1.21 %, to 1,495.49. The Nasdaq composite index added 38.39, or 1.45 %, to 2,690.74.

Bond prices fell as investors returned to the stock market. The 10-year Treasury note's yield, which moves opposite the price, rose to 4.13 % from 3.97 % late Tuesday.

On Tuesday, stocks plummeted after the Fed lowered the target fed funds rate by a quarter point to 4.25 %, disappointing investors who hoped for a more aggressive move to boost the economy during the seize-up in credit and rise in home foreclosures. Investors were also unnerved that the central bank did not implement a larger cut in the discount rate _ the rate the Fed charges banks _ and did not offer a more definite pledge to cut rates further.

``We've thought for some time the market was going to be volatile and trendless until the end of the year,'' said Brian Gendreau, investment strategist for ING Investment Management. ``The Fed rate cut didn't do it to help us get through this weak patch in the economy. These new liquidity vehicles, and coordination with foreign central banks, is what investors were looking for.''

Investors also digested new economic data. The Commerce Department reported that the U.S. trade deficit rose to the loftiest level in three months, driven by record-high oil prices and an influx of Chinese imports. Import prices surged.

In corporate news, SLM Corp., the student loan company known as Sallie Mae, slashed its 2008 earnings due to the costs of replacing an interim funding facility. The company also disclosed it failed to renegotiate a buyout with an investor group that balked several months ago at its original $25 billion cash offer.

Shares plunged $2.99, or 9.2 %, to $29.99.

The dollar fell against the euro and pound but rose versus the yen. Gold prices rose.

Energy prices rose after the Energy Information Administration reported surprising declines in U.S. stockpiles of crude oil and distillate fuels, such as heating oil. Light, sweet crude for January delivery jumped $2.21 to $92.23 a barrel on the New York Mercantile Exchange.

The Russell 2000 index rose 12.50, or 1.63 %, to 778.77.

Advancing issues led decliners by a 4 to 1 basis on the New York Stock Exchange, where volume came to 348.4 million shares.

Overseas, Japan's Nikkei stock average closed down 0.70 %, while Hong Kong's Hang Seng index closed down 2.41 %. Britain's FTSE 100 rose 0.37 %, Germany's DAX index added 0.95 %, and France's CAC-40 rose 0.60 %.