Tuesday December 16, 06:41 PM
Global stocks higher ahead of US interest rate decision
LONDON (AFP) - World (WRGR.TA - news) stocks markets were higher on Tuesday as investors anticipated another cut in interest rates from the Federal Reserve to boost the flagging US economy.
The US central bank was expected later on Tuesday to cut the base rate by at least 50 basis points to 0.50 percent, which would be an all-time low, although some analysts forecast a 0.75-percentage point cut to tackle a recession.
At the close in Europe, London's FTSE 100 index was up 0.74 percent at 4,309.08 points, in Paris the CAC 40 (Paris: news) was 2.07 percent higher at 3,251.66 points, while the Frankfurt Dax gained 1.61 percent to close at 4,729.91 points.
The Dow Jones Industrial Average climbed 0.73 percent to 8,627.21 and the Nasdaq (NASDAQ: news) added 1.70 percent to 1,533.92 at 1545 GMT, rebounding from losses Monday.
The broad-market Standard & Poor's 500 index increased 1.21 percent to 879.06.
In Asia, Tokyo closed 1.12 percent down and Sydney lost one percent owing to caution over the weak economy and the massive Madoff fraud scandal, dealers said.
But Hong Kong finished 0.6 percent higher as investors stayed on the sidelines ahead of the Fed rate call. Wall Street, which sank overnight, reopens at 1430 GMT.
"European equity markets find a degree of optimism... despite falls being seen in both US and Asian markets as exposure to the Madoff scandal grows and traders worry about another panic rate cut from the Fed later in the session," said CMC Markets dealer Matt Buckland.
"However a reversion in oil prices -- crude is now trading back below 45 dollars a barrel -- could weigh on the energy sector," he warned.
US financial regulators came under increased attack Tuesday for failing to stop a 50-billion-dollar fraud that Wall Street heavyweight Bernard Madoff is accused of running as more banks and investment funds reported losses.
Private Austrian bank Medici became the latest to report an exposure of 2.1 billion dollars (1.5 billion euros) via two of its investment funds.
The group, which is 75-percent owned by Vienna-based banker Sonja Kohn and 25-percent owned a local unit of Italy's Unicredit (Milan: UCG.MI - news) , said the exposure did not threaten its survival.
The US Federal Open Market Committee was meanwhile expected to cut its base lending rate from the current level of 1.0 percent when its two day meeting concludes later Tuesday, even if the move would be largely symbolic.
Ian Shepherdson, at High Frequency Economics, said: "It would be surprising if the Fed were to do anything other than cut the funds rate by 50 basis points.
"We think the case for cutting even further is very strong but (Fed chairman Ben) Bernanke and his colleagues may want to keep something in reserve."
However, futures market trading suggests a strong likelihood of a cut to 0.25 percent, below the super-low Japanese rate of 0.3 percent.
Investors looked past a host of other poor economic reports issued on Tuesday.
Consumer prices in the United States plunged a record 1.7 percent in November, raising fears of deflation that were echoed in Britain and France, which both reported sharp drops in their 12-month inflation in November.
In more signs of the deepening economic gloom, US housing starts took a record 18.9-percent tumble during November and European trade body ACEA (Milan: ACE.MI - news) reported a year-on-year plunge of 25.8 percent in new car sales in Europe in November.
"The collapse has become clear," said the Kommersant business newspaper in Moscow, referring to an industrial output slump in Russia during November of 10.8 percent -- the worst result since the fearsome 1998 financial crisis.
Japan's central bank also said that business confidence had suffered its sharpest drop for three decades.
On the auto front, there has been no firm progress on a possible bailout for the struggling Big Three US carmakers -- General Motors (NYSE: GM - news) , Ford and Chrysler.
The White House warned that the US auto industry would have to make "concessions," saying it was still weighing options on a possible government bailout of the ailing car companies.
Lawmakers have said time is running out for the auto giants, and traded blame with union chiefs over last week's collapse in the Senate of a short-term 14-billion dollar rescue.
The White House has now said it is ready to consider dipping into a 700-billion dollar Wall Street bailout agreed earlier this year.
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