Fed's Move to Cut Key Interest Rate Helps Take Some Pressure Off Stocks
From News Services
Saturday, August 18, 2007; Page D04
NEW YORK, Aug. 17 -- The Federal Reserve's surprise decision Friday to cut a key discount rate sent stocks higher as investors' worries about the credit crunch eased.
The Dow rose 233.30 points, to 13,079.08, after spending most of another volatile day in positive territory. Despite the strong finish, its biggest point gain since Aug. 6, the Dow was still off 1 percent for the week.
The broader measure, the Standard & Poor's 500-stock index, rose 34.67, to 1445.94, but was down 0.5 percent for the week. The Nasdaq composite index rose 53.96, to 2505.03, but was off 1.6 percent for the week.
The Fed, which had resisted lowering rates despite weeks of violent market swings, cut its discount rate to 5.75 percent from 6.25 percent. The central bank acknowledged that the stock market turbulence that has pulled the Dow down by hundreds of points a day was posing a risk to economic growth. Since Aug. 9, the Fed has added $88 billion in liquidity to the banking system.
The Fed made no mention of lowering its target for the federal funds rate, which has stood at 5.25 percent for more than a year. The federal funds rate is the rate that banks charge each other, while the discount rate only covers loans the Fed makes to banks. Many strategists believe the market will not settle down until the Fed lowers the funds rate, considered a more significant benchmark.
Hugh Whelan, managing director at Hartford Investment Management, said the Fed's move was helpful psychologically but did not alter the stresses on the system. "If you're a leveraged financial institution, a leveraged individual, a leveraged hedge fund, on Monday when you walk in, you're still facing the same stresses you faced today and yesterday."
Movers
WNS Holdings fell $4.05, to $20.45. The outsourcing services provider's lending unit suspended operations.
Rare Hospitality International rose $9.87, to $37.38. Darden Restaurants plans to acquire the operator of the Longhorn Steakhouse chain.
Melco PBL Entertainment rose $1.38, to $11.48. The casino operator said its second-quarter revenue rose 720 percent, to $45.1 million.
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