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Investors optimistic about AIG prospects. Dow up 141 points
Published on Wednesday, Sep 17, 2008
Associated Press
NEW YORK: Wall Street ended another tumultuous session with a sizable gain Tuesday, partly recovering from its worst sell-off in years after the Federal Reserve said it was keeping interest rates steady.
Speculation that troubled insurer American International Group Inc. might come up with a much-needed cash injection made room for many financial stocks to rally.
A day after the Dow Jones industrial average fell more than 500 points amid surging fears about the financial sector, investors alternately despaired and grew optimistic about the prospects for AIG. As one of the 30 stocks that make up the Dow, the company's fluctuations tugged at the blue-chip index throughout the session. The Dow at turns rose and fell as much as 175 points before ending up 141.
Meanwhile, the Fed's decision, while not popular with investors clamoring for a rate cut to boost market sentiment, appeared to sidestep the second-guessing about the health of the economy that can follow a cut in difficult times. The Fed, acknowledging strains upon the financial markets, reminded investors that it has taken steps to add more cash to the banking system. Those moves and earlier rate cuts should foster moderate economic growth over time, the central bank said in the statement accompanying its rate decision.
''This was the right thing to do,'' said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles. ''I just don't think the Fed should be responding to
the financial market crisis at this stage.''
The Dow rose 141.51, or 1.30 percent, to 11,059.02, after falling about 100 points immediately after the Fed announcement. Its 504-point drop Monday was its worst showing since the September 2001 terrorist attacks.
Bond prices also fluctuated during the day as investors sought and then turned away from the safety of government debt. Bonds ended little changed, with the yield on the benchmark 10-year Treasury note unchanged at 7.41 percent. The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude for October delivery fell $3.70 to settle at $92.01 a barrel on the New York Mercantile Exchange, bringing its two-day decline to $10, as investors placed bets that a slowing economy will crimp demand. Gas prices continued to rise following the disruption to supplies brought by Hurricane Ike, though they were expected to moderate in the coming weeks.
The Fed has cut its target federal funds rate by 3.25 percentage points to its current level of 2 percent over the past year. Many on Wall Street expected the Fed to keep rates steady, but there was some hope that the central bank would try to calm uneasy financial markets with a rate cut.
Still, the fact that the Fed didn't lower rates was a sign that it doesn't believe the economy needs that type of stimulus. It reiterated that it believed its moves to inject more liquidity into the banking system to help struggling financial institutions would help them, and in turn, the economy overall.
The partial recovery in shares of AIG as well and some of the other financial stocks that led the market lower Monday were a welcome boost to investor sentiment. JPMorgan Chase & Co. rose $3.74, or 10 percent, to $40.74, while Wells Fargo & Co. rose $3.93, or 13 percent, to $34.93.
Steven Goldman, chief market strategist at Weeden & Co., said investors are starting to examine even troubled sectors like banks to pluck out those sidestepping credit troubles.
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