Central Banks Pouring Money into Markets |
The Fed's "repo" follows a move by the Bank of Japan to put $5 billion into the markets and an addition by the European Central Bank of $65.3 billion; the ECB added more than $200 billion last week. The moves, following similar injections by the Fed last week, appeared to placate Wall Street for now and allowed it to look ahead to a week of fresh economic data. Since Thursday, the Fed has added $62 billion in liquidity.
So far, the central bank moves seem to be calming a market that has been torn by volatility for weeks.
"The environment we're in is really truly extraordinary. The best way for investors to view this is from a 30,000-foot view -- to be positioned defensively and to continue to pay close attention to the U.S. economy and the consumer," said J. Michael Barron, chief executive of Knott Capital in Exton, Pa.
In late morning trading, the Dow Jones industrial average rose 60.40, or 0.46 percent, to 13,299.94.
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 9.28, or 0.64 percent, to 1,462.92, and the Nasdaq composite index rose 15.94, or 0.63 percent, to 2,560.83.
After enduring sharp swings to the downside last week, the Dow Jones industrials and other major indexes ultimately finished the week with a modest gain. Last week's trading showed that the most predictable thing about the markets lately is high volatility.
Investors were in a better humor Monday, despite the great deal of uncertainty in the market over the extent of problems in the subprime mortgage sector. Defaults among subprime mortgage holders -- borrowers with weak credit -- began the chain of events that led to the turmoil on Wall Street and other stock markets in recent weeks.
Those defaults recently led to the collapse of two Bear Stearns funds with risky mortgage-backed investments and last week prompted French bank BNP Paribas to freeze three funds with exposure to the U.S. subprime mortgage market.
Barron contends that investors should look past the Fed's liquidity injections and to the housing market problems that underlie many investors' concerns about the availability of credit. He sees the fallout from an overheated housing market and an overextended consumer as just beginning to emerge.
"Even if the Fed does cut rates what stimulative effect does that have on the economy? The Fed can make money available but banks still have to lend it," Barron said.
He said banks likely will still be hesitant to make loans easily available only a few months ago.
Last Tuesday, the Fed left short-term interest rates unchanged at 5.25 percent as it has for more than a year and reiterated that its primary concern remains inflation.
Investors appeared pleased with the Commerce Department's report that retail sales edged up 0.3 percent in July, slightly ahead of market expectations. Wall Street has been closely monitoring consumer spending, as it accounts for two-thirds of the nation's total economic activity.
Goldman Sachs Group Inc. said Monday its funds using quantitative strategies, or computer modeling, "are currently under pressure" after global markets sold off on worries about debt and credit. The investment bank said it and certain large investors including Maurice "Hank" Greenberg and Eli Broad have committed to a $3 billion equity investment in its Global Equity Opportunities fund, which has "suffered significantly." The fund had a net asset value of about $3.6 billion before the equity investment. Goldman rose $1.12 to $181.62.
Before announcing its latest liquidity injection, the Fed said Monday it stood ready to supply more liquidity to the market. The federal funds rate traded at the central bank's target 5.25 percent; last week, a fed funds rate of about 6 percent triggered cash injections last week.
Bond were little changed. The yield on the 10-year Treasury note remained flat at 4.80 percent from late Friday.
On Monday, struggling subprime lender Accredited Home Lenders Holding Co. said it has sued Lone Star Fund V LP and two affiliates to get the private equity firm to follow through with an agreed takeover. Lone Star said Friday in a regulatory filing that Accredited no longer met the conditions of its $400 million acquisition offer. Without a deal, Accredited has cautioned that it may face bankruptcy. The company fell $3.01, or 33.9 percent, to $5.89.
In its first quarterly report as a public company, private equity firm Blackstone Group LP posted second-quarter revenue of $975.3 billion, below analysts' consensus of $1.06 billion. The company's much-anticipated initial public offering in June raised about $4 billion, but the stock has fallen short of expectations. On Monday, however, Blackstone rose $1.36, or 5.4 percent, to $26.64.
Overseas Monday, Japan's Nikkei stock average gained 0.21 percent. European stocks showed sharp gains after a sell-off Friday. Britain's FTSE 100 jumped 2.85 percent, Germany's DAX index added 1.52 percent, and France's CAC-40 rose 1.77 percent.
The dollar was mixed against other major world currencies. Gold futures fluctuated, while oil futures rose. Light, sweet crude rose $1.42 to $72.92 per barrel on the New York Mercantile Exchange.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 641.1 million shares.
The Russell 2000 index of smaller companies rose 2.74, or 0.35 percent, to 791.52.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
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