The Federal Reserve, in line with street expectations, cut the interest rates by 50 basis points in yet another effort to stall the turmoil in financial markets worldwide.
The Fed lowered the discount rate, or the interest the Fed charges on loans to banks, by a half-point to 3.50%. It also lowered the fed funds rate, (the interest banks pay one another for overnight loans) to 3%, the lowest level since spring 2005.
The market reacted positively to the news with both the Dow Jones and Nasdaq Composite index taking a u-turn and spurting back in action from their day`s lows.
However, the last hour of trade saw some heavy selling by traders who chose to lock-in profits ahead of the employment report on Friday. Key reports on the job market and manufacturing set could raise concerns about the state of the economy, which has been dogged by the sub prime crisis which emerged last year and losses at major financial institutions.
The Dow, which had been up more than 200 points after the Fed`s decision, finished down 37.47 points, or 0.30% at 12,442.83, and the Nasdaq composite index fell 9.06 points, or 0.38%, to 2,349.00.
The Fed had recently cut rates by 75 basis points in a rescue-act after global markets had fallen sharply.
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