Sat, Feb 20, 2010 page6

• World stocks drop on Fed move

  EMERGENCY LOANS Investors were concerned that the US Federal Reserve’s move to raise the discount rate by a quarter point signaled an end to its loose monetary policy

  • AP
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  World markets fell yesterday after the US Federal Reserve unexpectedly raised interest rates for emergency bank loans, triggering fears that regular borrowing costs could also move higher soon, slowing the recovery in the world’s largest economy.

  The central bank said on Thursday it would bump up the “discount” lending rate by one-quarter point to 0.75 percent effective yesterday, part of a pullback of the extraordinary aid it provided to fight the financial crisis.

  Although the Fed said the step should not be seen as a signal that it would soon boost interest rates for consumers and businesses, markets were spooked.

  After sharp drops in Asia, Germany’s DAX stock index was down 0.2 percent at 5,671.28 and Britain’s FTSE 100 was flat at 5,326.84. France’s CAC-40 fell 0.2 percent to 3,742.09.

  Wall Street was also expected to fall on the open. Dow Jones industrials futures were down 50 points at 10,325.00 and Standard Poor’s 500 futures were 8.2 points lower at 1,097.40.

  Growing optimism about the strength of the US economy had helped boost the Dow Jones industrial average rise by 3 percent over the past three days. But the surprise Fed announcement after Wall Street trading closed left traders wondering whether the so-called “exit strategy” from a loose monetary policy could come faster than expected and stifle US consumer demand.

  “It begs the questions of why this was not done, or at least signaled at a regular Federal Open Market Committee meeting,” said Marc Ostwald, strategist at Monument Securities in London.

  “It certainly is the case that the Fed wants to see how money markets function without so much of the liquidity life support that the Fed has been providing, and as such one can term this a form of ‘kite flying,’” Ostwald said.

  The Fed move also helped boost the US dollar and push the euro below nine-month lows — a sign traders may be turning away from higher-risk investments, analysts said.

  The euro fell to US$1.3504 from US$1.3529 late on Thursday after trading at nine-month lows below US$1.3400. After rising against the Japanese yen, the dollar was flat at ¥91.75.

  Economic data in Europe, meanwhile, failed to shore up investor sentiment. The purchasing managers’ survey of the eurozone, an economic indicator published by Markit research group, was stable this month, suggesting the recovery from recession has stagnated somewhat.

  In Asia, Hong Kong’s Hang Seng stock index led decliners, diving 528.13, or 2.6 percent, to 19,894.02 while Japan’s Nikkei 225 stock average dropped 212.11, or 2.1 percent, to 10,123.58.

  “As the dollar strengthens, we see less appetite for riskier assets such as Asian stocks,” said Jit Soon Lim, head of equity research for Southeast Asia for Nomura in Singapore. “We’re bullish on the region’s economic growth, but bearish on risk.”

  South Korea’s Kospi declined 27.29, or 1.7 percent, to 1,593.90.

  Singapore’s stock measure retreated 0.9 percent despite an increase of the government’s economic growth forecast for this year.

  Markets in China and Taiwan were closed this week for the Lunar New Year holiday.

  In the US on Thursday, the Dow rose 83.66, or 0.8 percent, to 10,392.90 while the Standard & Poor’s 500 index rose 7.24, or 0.7 percent, to 1,106.75. The NASDAQ rose 15.42, or 0.7 percent, to 2,241.71.
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