Fed Announced To Provide $85 Billion Loan To AIG
The stocks on Wall Street ended with substantial gains as Federal Reserve announced to leave its key interest rates unchanged at 2%. The major averages ended with notable gains, with the S&P 500 closing just off of its intraday high. The S&P 500 closed up 20.90 points or 1.8% at 1,213.60, the Dow closed up 141.51 points or 1.3% at 11,059.02 and the Nasdaq closed up 27.99 points or 1.3% at 2,207.90.
The strength in the markets came amid speculation that a bailout for AIG is imminent, prompting investors to look for bargains. The markets were bolstered late in the day amid speculation that the government may take part in an AIG bailout. Justifying the speculation the U.S. Federal Reserve announced yesterday night that it has approved an $85 billion loan to insurance giant AIG in the latest government intervention aimed at controlling the spread of the recent financial crisis. The Fed stated that it would provide up to $85 billion to AIG in a secured loan collateralized by all the assets of the company, and of its primary non-regulated subsidiaries. The central bank said the action comes with the full support of the Treasury Department.
As a result of the loan, the government will receive a 79.9% equity interest in AIG. The Fed reported that the government would have the right to veto the payment of dividends to common and preferred shareholders.
Prior to that the U.S. Federal Reserve announced that it has decided to hold short-term borrowing rates steady, ignoring calls for an interest rate cut that were prompted by the latest Wall Street turmoil. While recent signs of strain in the financial markets encouraged speculation that the Fed might lower interest rates to stimulate the economy, the central bank chose to stay the course for now. In the policy statement that accompanied the rate decision, the Fed acknowledged increased strains in the financial markets lately and predicted that growth will be weighed down in the next few quarters by tight conditions in the credit markets, the continued decline in the housing industry, and some slowing of export growth.
Among other economic news, Consumer inflation fell for the first time in nearly two years due to declines in energy, transportation and housing costs.Overall prices fell 0.1%, while core inflation, which strips out volatile food and energy prices, rose 0.2%.Overall inflation is up an unadjusted 5.4% in the 12 months ending in August, down from the 5.6% reported for July. Core inflation has risen an unadjusted 2.5% over the last 12 months. On a seasonally adjusted basis, overall inflation rose at a 7.2% annualized pace in the last three months. Core inflation has risen at a 3.4% annualized pace in the past three months, well above the Federal Reserve's "comfort zone".
On the housing front, the National Association of Home Builders released results of a monthly survey of builders' thoughts on market prospects. In September index for sales of new, single-family homes rose to 18 from 16 in August - the first increase in seven months.
In another economic relief U.S. overall consumer confidence rose last week. According to an ABC News/Washington Post poll the consumer comfort index rose six points to -41 in the week ended Sept. 15, from -47 a week earlier.
Adding to the buying interest in the stock markets, crude oil closed sharply lower for the second straight day and ended below the $92 a barrel mark. Light sweet crude fell to $91.15 per barrel, down $4.56 on the session. Oil has dropped nearly $10 on the week, as troubles in the U.S. financial sector could reduce energy demand.
Coming back to equities if we analyze the index in detail we can see that after earlier weakness, the majority of the Dow components ended the session with notable gains, sending the blue chip index firmly into positive territory. Of the 30 stocks that make up the Dow, only 12 ended the session lower.
Bank of America saw significant buying interest after showing weakness earlier in the day. Shares of the bank closed up 11.3%, bouncing off of the two-month closing low set in the previous session.
JP Morgan Chase and Citigroup were among the other financials within the Dow that saw notable buying interest. JP Morgan Chase closed up 10.11%, compared to a 3.4% gain by Citigroup.
Hewlett Packard also posted a substantial gain. The stock climbed 6.8%, reversing the loss posted in the previous session. With the gain, the stock set a three-month closing high. HP said Monday that it plans to cut about 24,600 jobs, or about 7.5% of its work force, over the next three years as part of a restructuring program the company is going to implement while integrating the business of newly acquired Electronic Data Systems.
After seeing earlier weakness, Exxon Mobil and Chevron closed sharply higher as well. Exxon Mobil saw a gain of 4.3 %, while Chevron rose 2.2 %.
Other Dow components that saw notable gains include DuPont, Caterpillar and General Electric. DuPont closed up 3.4 %, Caterpillar closed up 2.4 % and General Electric closed up 1.9 %.
On the other hand, AIG continued its plunge, although it moved well off of its intraday low amid speculation that a bailout might be eminent. Shares of the insurer closed down 21.2 % at a multi decade closing low.
General Motors, Home Depot and Microsoft also saw substantial declines. General Motors closed down 5.2 %, compared to a 3.2 % drop by Home Depot. Microsoft ended the session 3.1 % lower.
In other regional markets, most stock markets across the Asian region closed sharply lower, with the South Korea's KOSPI plunging 6 %, Hong Kong's Hang Seng plummeting 5.4 % and Japan's Nikkei 225 index tumbling 5 %. However, the stock market in Indonesia pared early losses and moved into positive terrain.
The major European markets also extended their losses. The French CAC 40 Index and the German DAX Index fell 0.8 % and 1.1 %, respectively, while the U.K's FTSE 100 Index ended the day down about 2.3 %.
Looking ahead the Department of Commerce will release its report on housing starts and building permits, which measures initial construction on residential units. EIA will release its weekly report on crude oil stocks for the week ended on 13 September 2008.
The stocks on Wall Street ended with substantial gains as Federal Reserve announced to leave its key interest rates unchanged at 2%. The major averages ended with notable gains, with the S&P 500 closing just off of its intraday high. The S&P 500 closed up 20.90 points or 1.8% at 1,213.60, the Dow closed up 141.51 points or 1.3% at 11,059.02 and the Nasdaq closed up 27.99 points or 1.3% at 2,207.90.
The strength in the markets came amid speculation that a bailout for AIG is imminent, prompting investors to look for bargains. The markets were bolstered late in the day amid speculation that the government may take part in an AIG bailout. Justifying the speculation the U.S. Federal Reserve announced yesterday night that it has approved an $85 billion loan to insurance giant AIG in the latest government intervention aimed at controlling the spread of the recent financial crisis. The Fed stated that it would provide up to $85 billion to AIG in a secured loan collateralized by all the assets of the company, and of its primary non-regulated subsidiaries. The central bank said the action comes with the full support of the Treasury Department.
As a result of the loan, the government will receive a 79.9% equity interest in AIG. The Fed reported that the government would have the right to veto the payment of dividends to common and preferred shareholders.
Prior to that the U.S. Federal Reserve announced that it has decided to hold short-term borrowing rates steady, ignoring calls for an interest rate cut that were prompted by the latest Wall Street turmoil. While recent signs of strain in the financial markets encouraged speculation that the Fed might lower interest rates to stimulate the economy, the central bank chose to stay the course for now. In the policy statement that accompanied the rate decision, the Fed acknowledged increased strains in the financial markets lately and predicted that growth will be weighed down in the next few quarters by tight conditions in the credit markets, the continued decline in the housing industry, and some slowing of export growth.
Among other economic news, Consumer inflation fell for the first time in nearly two years due to declines in energy, transportation and housing costs.Overall prices fell 0.1%, while core inflation, which strips out volatile food and energy prices, rose 0.2%.Overall inflation is up an unadjusted 5.4% in the 12 months ending in August, down from the 5.6% reported for July. Core inflation has risen an unadjusted 2.5% over the last 12 months. On a seasonally adjusted basis, overall inflation rose at a 7.2% annualized pace in the last three months. Core inflation has risen at a 3.4% annualized pace in the past three months, well above the Federal Reserve's "comfort zone".
On the housing front, the National Association of Home Builders released results of a monthly survey of builders' thoughts on market prospects. In September index for sales of new, single-family homes rose to 18 from 16 in August - the first increase in seven months.
In another economic relief U.S. overall consumer confidence rose last week. According to an ABC News/Washington Post poll the consumer comfort index rose six points to -41 in the week ended Sept. 15, from -47 a week earlier.
Adding to the buying interest in the stock markets, crude oil closed sharply lower for the second straight day and ended below the $92 a barrel mark. Light sweet crude fell to $91.15 per barrel, down $4.56 on the session. Oil has dropped nearly $10 on the week, as troubles in the U.S. financial sector could reduce energy demand.
Coming back to equities if we analyze the index in detail we can see that after earlier weakness, the majority of the Dow components ended the session with notable gains, sending the blue chip index firmly into positive territory. Of the 30 stocks that make up the Dow, only 12 ended the session lower.
Bank of America saw significant buying interest after showing weakness earlier in the day. Shares of the bank closed up 11.3%, bouncing off of the two-month closing low set in the previous session.
JP Morgan Chase and Citigroup were among the other financials within the Dow that saw notable buying interest. JP Morgan Chase closed up 10.11%, compared to a 3.4% gain by Citigroup.
Hewlett Packard also posted a substantial gain. The stock climbed 6.8%, reversing the loss posted in the previous session. With the gain, the stock set a three-month closing high. HP said Monday that it plans to cut about 24,600 jobs, or about 7.5% of its work force, over the next three years as part of a restructuring program the company is going to implement while integrating the business of newly acquired Electronic Data Systems.
After seeing earlier weakness, Exxon Mobil and Chevron closed sharply higher as well. Exxon Mobil saw a gain of 4.3 %, while Chevron rose 2.2 %.
Other Dow components that saw notable gains include DuPont, Caterpillar and General Electric. DuPont closed up 3.4 %, Caterpillar closed up 2.4 % and General Electric closed up 1.9 %.
On the other hand, AIG continued its plunge, although it moved well off of its intraday low amid speculation that a bailout might be eminent. Shares of the insurer closed down 21.2 % at a multi decade closing low.
General Motors, Home Depot and Microsoft also saw substantial declines. General Motors closed down 5.2 %, compared to a 3.2 % drop by Home Depot. Microsoft ended the session 3.1 % lower.
In other regional markets, most stock markets across the Asian region closed sharply lower, with the South Korea's KOSPI plunging 6 %, Hong Kong's Hang Seng plummeting 5.4 % and Japan's Nikkei 225 index tumbling 5 %. However, the stock market in Indonesia pared early losses and moved into positive terrain.
The major European markets also extended their losses. The French CAC 40 Index and the German DAX Index fell 0.8 % and 1.1 %, respectively, while the U.K's FTSE 100 Index ended the day down about 2.3 %.
Looking ahead the Department of Commerce will release its report on housing starts and building permits, which measures initial construction on residential units. EIA will release its weekly report on crude oil stocks for the week ended on 13 September 2008.
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