European and Asian Markets Rally on News of U.S. Rate Cut
Wednesday, January 23, 2008
European financial markets stabilized yesterday after the U.S. interest-rate cut, as political leaders sought to calm sell-off fears by assuring Europeans that economic problems were in the United States, not their countries.
Major Latin American stock exchanges also rose after steep declines Monday, boosted by news of the Federal Reserve's three-quarter-point interest rate cut.
Asian markets rebounded Wednesday. Japan's Nikkei 225 was up 3.5 percent at the close of morning trading, and Australia's benchmark index was up about 5.1 percent at midday. Hong Kong's Hang Seng surged almost 7.5 percent in early trading and was up about 5.8 percent later in the morning, while China's stocks rose for the first time in three days.
Those gains came a day after stocks across Asia took precipitous falls for the second day in a row. The drops yesterday were even more severe than Monday's, and several markets hit multiyear lows. The Australian market suffered its worst one-day fall ever. Japan's Nikkei 225 fell to its lowest level since 2005.
Also yesterday, Indian shares plunged so quickly -- nearly 11 percent -- that its stock markets halted trading within a minute of opening and did not resume for an hour. The Bombay Stock Exchange Sensitive Index closed down 4.97 percent, its seventh successive drop. In South Korea, volatile futures prices prompted the main Kospi market to briefly suspend program-selling orders at midday.
French Finance Minister Christine Lagarde counseled against "losing one's head."
"We are not in the same situation as the U.S.A.," she said on French radio. "American households can be 100 percent in debt, with floating interest rates. It is not the case in Europe; it is not the case in France. Unemployment in the U.S.A. is increasing, in France it is decreasing. The U.S. economic growth has slowed; French growth is continuing up."
Germany's deputy finance minister, Thomas Mirow, offered a similar view in Brussels. "The crisis took its first steps in the U.S.," he said. "The U.S. is coping with it, and it's their responsibility."
Major European stock markets fell yesterday morning on continuing fears of a U.S. recession and spillover from the subprime mortgage crisis. They bounced back after the Fed's interest rate announcement, which was made early in the afternoon European time.
London's FTSE 100 index rose 2.9 percent yesterday after falling 5.5 percent fall on Monday. France's CAC-40 index rose 2.1 percent after falling almost 7 percent Monday. Frankfurt's DAX stock index, one of Europe's few losers yesterday, was down 0.3 percent after losing 7 percent the day before.
"This may not be the silver bullet that kills off the threat of recession, but it's a move in the right direction," said Henk Potts, a strategist at Barclays Wealth in London, referring to the U.S. rate cut.
French President Nicolas Sarkozy said he would meet with his British and German counterparts next week in London to discuss proposals to make European financial systems more transparent and less susceptible to speculation.