By Lynn Thomasson and Shannon D. Harrington
Aug. 18 (Bloomberg) -- In the world's financial markets, the subprime mortgage collapse may finally be contained.
Stocks in the U.S. and Europe rallied yesterday after the Federal Reserve unexpectedly cut the discount rate to ease a credit crunch. Crude oil, copper and gold advanced on reduced concern that the U.S. economy, the world's largest, would slow. Three-month U.S. Treasury bill yields rose because the need for government debt as a safe haven diminished, and the dollar fell against the euro for the first time in a week.
The Standard & Poor's 500 Index rose 34.67, or 2.5 percent, to close at 1,445.94, while the Dow Jones Industrial Average increased 233.3, or 1.8 percent, to 13,079.08. The Nasdaq Composite Index gained 53.96, or 2.2 percent, to 2,505.03.
When the Fed announced the rate reduction at 8:15 a.m. New York time, S&P 500 futures soared 3.6 percent in 46 seconds. Within 15 minutes, Europe's Dow Jones Stoxx 600 Index was up 2.4 percent. Credit-default swaps on the CDX North America Investment-Grade Index dropped 6 basis points to 72 basis points as the perception of U.S. corporate-bond risk declined.
Tips: FED expected to reduce interest rate further to ease the credit crunch. Another possible factor to help to improve US economy as a whole is to force China government to allow Chinese RMB to appreciate. If this will be the next move, I think market will rally to new high after this sub-prime issue.But, according some source, the yen carry trade is NOT OVER YET
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