The Wall Street Journal-20080115-Greater Chances of Rate Cut Aid Stocks- Gold- Hurt Dollar
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Greater Chances of Rate Cut Aid Stocks, Gold, Hurt Dollar
Investors saw increasing chances of steep interest-rate cuts by the Federal Reserve and pushed stocks higher, the dollar lower, and gold to a record of more than $900 an ounce.
The Dow Jones Industrial Average ended up 171.85 points, or 1.4%, at 12778.15. It is still down 3.7% on the year. The strongest component was International Business Machines, which rallied 5.4% after issuing preliminary fourth-quarter results that trounced analysts' expectations.
IBM benefited from the dollar's weakness in late 2007. The soft currency meant its substantial overseas revenues translated into more dollars when booked back home.
The dollar weakened further against major foreign currencies, spurred along by last week's comments by Fed Chairman Ben Bernanke, who said "substantive" interest-rate actions could be coming. Traders interpreted that as a harbinger of a steep interest-rate cut at the Fed's Jan. 29-30 meeting, which would spur U.S. economic growth.
"Now would be the time to cut early, because there are so many concerns, so many people wondering about the risks from [bad mortgage bets at] the banks and whether the Fed has gotten things wrong so far," said currency strategist Ashraf Laidi, of CMC Markets, a New York brokerage.
The Fed's benchmark short-term interest rate stands at 4.25%. Prices for 10-year Treasury notes rose yesterday, pushing the yield down to 3.793%.
Futures traders in Chicago placed the chance of a half percentage- point rate cut, rather than the quarter-point move favored by the Fed at previous meetings, at 56% yesterday. Gold, a traditional haven for investors at times of economic uncertainty and to some an inflation hedge, ended $5.50 higher, up 0.6%, at a record $901.60 an ounce in New York, up 8% this year.
The Nasdaq Composite Index was up 1.6%, or 38.36 points, at 2478.30, down 6.6% on the year. The Standard & Poor's 500 was up 1.1%, or 15.23 points, to 1416.25, down 3.5% on the year.
