(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 11 (Reuters) - A move by the U.S. Federal
Reserve and other central banks on Tuesday to inject
cash-starved markets with massive dose of funds sparked a
global stock rally and clipped a new surge in oil prices to
almost $110 a barrel.
In the latest concerted effort to ease tight credit markets
and bolster flagging economies, the Fed and the European
Central Bank, along with the central banks of Canada, Britain
and Switzerland, announced various measures to boost
liquidity.
The move reversed a recent slide in global equity markets
and stopped a seemingly daily march in prices of oil and
precious metals, including gold, to new highs in New York and
London.
"The Fed action is significant, well telegraphed and seems
to be working," said Andrew Brenner, a senior vice president at
MF Global in New York. "With $200 billion announced last week
this is another $200 billion. With $400 billion in liquidity we
are now talking some real coin," Brenner said.
The dollar retreated from an all-time high against the euro
and jumped more than 1 percent off eight-year lows against the
yen.
Oil prices pared gains after setting a record for the fifth
straight day, while gold, which has paused on a march toward
$1,000 an ounce, fell as the dollar strengthened.
U.S. government bond prices plunged as investor fears for
the worst and a safe-haven bid eased.
A new lending facility allows banks to use some of the very
assets that have been at the heart of a global crisis sparked
by lending in the U.S. housing market, including agency and
mortgage-backed debt, as collateral for their borrowing.
Financial shares, heavily battered amid an economic
slowdown and huge write-downs because of the morass in the
U.S.-housing market, led both the U.S. and European stock
rallies.
U.S. stocks were on track for their second-biggest gain of
the year after three days of losses. Stocks had been close to
their lows for the year as fears of a U.S. recession mounted.
Shares of beleaguered homebuilders also climbed.
"It's an extension of credit. This is exactly what we
needed. It jump-starts the ability of these financial
institutions to lend more money," said Ted Oberhaus, manager of
equity trading at Lord Abbett & Co.
The Dow Jones industrial average <> jumped 177.56
points, or 1.51 percent, to 11,917.71, after earlier rising
more than 2 percent to an intraday high at 12,022.16. The
Standard & Poor's 500 Index <.SPX> climbed 17.53 points, or
1.38 percent, to 1,290.90. The Nasdaq Composite Index <>
gained 35.93 points, or 1.66 percent, to 2,205.27.
Shares of Fannie Mae <FNM.N>, the largest U.S. mortgage
finance company, rose 5 percent to $20.79, while No. 2-ranked
Freddie Mac <FRE.N> gained 5.3 percent to $18.31.
Bank of America Corp <BAC.N> shot up 1.8 percent to $35.95
and Citigroup Inc <C.N>, the largest U.S. bank, climbed 4.4
percent to $20.55.
The global stocks rally pulled the FTSEurofirst 300 index
of top European shares from mid-January lows.
The FTSEurofirst 300 index <>, in tandem with U.S.
markets, later pared gains to close up 1.28 percent at
1,270.81. Top gainers included HSBC <HSBA.L> , Europe's biggest
bank, which rose 2.7 percent, Spain's Banco Santander <SAN.MC>,
up 3.3 percent, and Royal Bank of Scotland<RBS.L>, which surged
4.5 percent.
Before the central banks' moves, Asian stocks posted their
first gain in three sessions as investors, still worried by a
looming U.S. recession and credit concerns, hedged positions
amid talk of an emergency cut in U.S. interest rates.
Japan's Nikkei 225 average <> rose 1 percent, bouncing
back from a 2-year low earlier in the session.
The MSCI index of Asian stocks outside Japan
<.MIAPJ0000PUS> closed 0.68 percent higher, climbing back after
falling as much as 1.4 percent to its lowest since Jan. 23.
"After the market fell this morning, there was speculation
by some analysts of an emergency U.S. rate cut, after which
short-covering emerged," said Hiroaki Osakabe, a fund manager
at Chiba Asset Management.
MSCI's main world equity index <.MIWD00000PUS> extended
gains to 1.23 percent. The index also had earlier hit its
weakest since mid-January.
The dollar soared against the yen and was on pace for its
biggest daily gain in three months after the Fed announcement.
The dollar hit a session high of 103.52 yen, well off an
eight-year low around 101.40.
The euro retreated from an all-time high just short of
$1.55 and fell as low as $1.5283 before edging back to $1.5335
<EUR=>, little changed on the day.
U.S. light crude for April delivery <CLc1> was up 56 cents
at $108.46 a barrel by 1617 GMT, after it touched a record
$109.72 a barrel.
London Brent crude <LCOc1> was up 63 cents at $104.79, off
its record high of $105.82.
"Oil is definitely reacting to the reversal of the dollar,
on coordinated central bank liquidity action," said Tom Bentz,
analyst at BNP Paribas Commodity Futures Inc.
Gold fell. Spot gold <XAU=> was quoted at $974.00/975.500
after hitting a high of $985.30, against $974.10/974.90 late in
New York on Monday. It rose to a record $991.90 on March 6.
"It reflects that the Fed is taking care of the fears for a
liquidity crisis," said Michael Blumenroth, metals trader at
Deutsche Bank.
A firmer dollar makes gold costlier for holders of other
currencies and often lowers bullion demand. The metal is also
generally seen as a hedge against oil-led inflation.
U.S. government bond prices plunged. The pain was felt most
heavily at the short end of the yield curve, with two-year
notes <US2YT=RR> diving an unusually large half point in price
to yield 1.75 percent -- the biggest move in at least four
years.
In Europe, two-year and 10-year euro zone government bond
yields were on track for their biggest one-day rise since the
end of January. A sharp fall in Euribor rates futures was such
that 50 basis points of ECB easing this year long priced into
the market was briefly taken off the table.
(Additional reporting by Pedro Nicolaci da Costa, Justin
Grant, Steven C. Johnson in New York, with Jane Merriman and
Atul Prakash in London; Editing by Leslie Adler)
