Tags: Market | Shrugs | off | Fed | Rate | Cut

Market Shrugs off Fed Rate Cut

Tuesday, 15 May 2001 12:00 AM

The Dow was slightly down, and the Nasdaq up a bit for the day, with analysts noting that the markets had already discounted the highly expected Fed rate cut.

The blue-chip Dow Jones Industrial Average, which gained 56.02 points Monday, was down 4.36 points, or 0.04 percent to close at 10,872.97. The tech-heavy Nasdaq composite index, which lost 25.51 points in the previous session, was up 3.79, or 0.18 percent, to close at 2,085.74.

The broader New York Stock Exchange composite index added 0.90 point to close at 637.43, while the Standard & Poor's 500 index was up 0.51 point to end at 1,249.43.

The American Stock Exchange composite index was up 6.22 points to close at 946.43. The Wilshire Smallcap Index was ahead 3.52 points to close at 749.38.

NYSE volume came in at 1.02 billion, while trading volume was 1.63 billion on the Nasdaq Stock Market. Advancers beat decliners by 19 to 12 on the NYSE and 21 to 17 on the Nasdaq.

The Fed's key policy-making body, the Federal Open Market Committee, cut short term interest rates for a fifth time this year, citing continued weakness in the U.S. economy, from 4.5 percent to 4 percent for the key federal funds overnight rate.

"Investment in capital equipment, however, has continued to decline. The erosion in current and prospective profitability, in combination with considerable uncertainty about the business outlook, seems likely to hold down capital spending going forward," the Fed's policy-making group said in a statement.

"This potential restraint, together with the possible effects of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, continues to weigh on the economy," the Fed added.

This cut sets the stage for the lowering of most other short-term rates and ultimately influences (albeit possibly inversely) long-term rates such as mortgage interest rates and business loan rates.

In its statement, the Federal Reserve indicated the possibility that rates could be cut yet again should the economy continue to show signs of potential recession.

Concerned about the inflationary impact of continued rate cuts, the 30-year government bond eased 21/32, its yield rising to 5.90 percent, while the 10-year Treasury note was off 13/32 to yield 5.49 percent.

In Europe, stock prices closed sharply higher on the London International Stock Exchange, recovering from the previous session's late decline. But activity was light as investors waited for the U.S. Federal Reserve's interest-rate decision.

London's blue-chip FTSE-100 index gained 136.4 points to 5,827.0 after sinking more than 200 points on Monday.

On Monday, the FTSE plunged during the post-market auction process after what is believed to have been an erroneous program trade went through.

But the London Stock Exchange said it had no plans to restate the closing index and that no trades would be canceled.

Meanwhile, stocks ended higher in light trading in Germany and France as investors awaited the decision on U.S. interest rates.

The blue-chip German DAX index rose 5.70 points to close at 6,070.38 and the French CAC-40 index rose 56.41 points to 5,544.13.

Earlier in Asia, prices ended higher on the Tokyo Stock Exchange in moderate trading as investors returned to large-cap technology and telecom shares ahead of the Federal Reserve's policy-setting meeting.

Japan's blue-chip Nikkei Average of 225 selected issues gained 181.01 points, or 1.3 percent, to close at 14,054.03 after diving in the morning as low as 13,806.05, the lowest intraday level since April 27. The index closed higher for the first time in two sessions. It fell 170.90 Monday.

Analysts said the Nikkei traded sideways for most of session before closing higher after Japanese pension funds apparently launched into buying in the afternoon, contributing to the rebound.

Elsewhere in Asia, prices ended little changed in cautious trading on the Hong Kong Stock Exchange amid concerns that a Fed rate cut may not be as deep as expected. The blue-chip Hang Seng Index slipped 9.08 points, or 0.07 percent, to 13,250.09.

Prices ended slightly lower in light trading on the South Korean Stock Exchange. The Composite Index slipped 2.78 points, or 0.48 percent, to 581.30.

Prices ended lower on the Taiwan Stock Exchange, pressured by weakness in key chipmakers. The tech-heavy Weighted Index lost 17.66 points, or 0.34 percent, to 5,158.79.

Elsewhere around the region, prices ended slightly higher in moderate trading on the Australian Stock Exchange. The All Ordinaries Index rose 7.40 points, or 0.22 percent, to 3,326.60.

Copyright 2001 by United Press International. All rights reserved.

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The Dow was slightly down, and the Nasdaq up a bit for the day, with analysts noting that the markets had already discounted the highly expected Fed rate cut. The blue-chip Dow Jones Industrial Average, which gained 56.02 points Monday, was down 4.36 points, or 0.04...
Tuesday, 15 May 2001 12:00 AM
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