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Wall Street surges as Fed pours in more liquidity
Posted: 12 March 2008 0545 hrs
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Traders work on the floor of the New York Stock Exchange.

NEW YORK : US stocks roared higher on Tuesday after the Federal Reserve and other central banks announced a series of moves to pump more liquidity into the financial system to ease a credit crunch.

The Dow Jones Industrial Average vaulted 416.66 points (3.55 percent) to close at 12,156.81 amid a powerful global share rally. It was the biggest point gain for the blue-chip index since 2002.

The Nasdaq composite powered higher by 86.42 points (3.98 percent) to 2,255.76 and the broad-market Standard & Poor's 500 index rallied 47.28 points (3.71 percent) to 1,320.65.

The market action came as the Fed announced moves in coordination with other central banks to pump more liquidity into the global financial system including a new auction for direct loans to banks and brokerages hit by grid-locked market conditions for mortgage-backed securities.

"Most of the glee in the equities market can be attributed to the Federal Reserve's decision to loan billions of dollars in securities in an attempt to lift liquidity in the financial arena," said Andrea Kramer at Schaeffer's Investment Research.

The Fed said it was pumping 200 billion dollars into a new Term Securities Lending Facility, with terms of 28 days instead of overnight under an existing programme.

The Fed shook markets out of their malaise that has seen the broad US market sink more than 10 percent so far in 2008.

"The Fed action came at a time when the markets were ripe for an oversold bounce," said Barry Ritholtz, analyst at research firm FusionIQ.

"The good news is this will help brokers and banks; the bad news is it will do nothing to help the housing market, or stop the decline in house prices."

Economist Brian Wesbury at First Trust Portfolios said the Fed found a way to get liquidity where it was needed without cutting interest rates.

"We believe the Fed has already provided the economy with more than enough liquidity to grow at a robust rate later this year," he said.

"By narrowly targeting the problems in the credit markets rather than broadly influencing the economy through additional steep rate cuts, the Fed has greatly improved its approach."

The financial sector led the rally with the latest actions poised to help ease their crisis. Citigroup shares pushed higher by 9.1 percent to 21.49 dollars while American Express jumped 9.5 percent to 43.83.

Energy shares also rose as crude oil flirted with new records near 110 dollars a barrel. ExxonMobil won 5.1 percent to 86.68 dollars and Chevron added 4.1 percent to 88.16.

The only blue-chip share to lose ground was Boeing, down 1.3 percent at 73.40 dollars as the aerospace group filed a formal challenge to a 35-billion-dollar contract for aerial refuelling tankers awarded to Northrop Grumman, up 1.65 percent at 79.68, and its European partner EADS, parent of Airbus.

Bonds fell as investors shifted to equities. The yield on the 10-year US Treasury bond rose to 3.596 percent from 3.438 percent on Monday and that on the 30-year bond increased to 4.530 percent from 4.448 percent. Bond yields and prices move in opposite directions. - AFP/de