The Federal Reserve pumped $17 billion into financial markets Thursday to fight the deepening subprime mortgage crisis, which had Wall Street reeling for a third day. Bank of Japan injects $10 billion into money market. London’s FTSE 100 sees lowest level since September 2006.
The Standard & Poor’s 500 Index, the broadest gauge of major US stocks, was down 0.9% in the second hour of trading in New York. Earlier, the growing credit crunch sent the yield on a three- month US Treasury bill down by the most in nearly 18 years. The Federal Reserve’s infusion - $5 billion before US stock markets opened and $12 billion 10 minutes after opening - followed a renewed fall in Asian and European stock markets. As demand for US Treasury bills soared, the yield on the three- month bill dipped 0.54 points to 4.09% Wednesday, the lowest since 2005 and the biggest single-day decline since October 13, 1989, Bloomberg News reported. The drop exceeded the 0.39% yield decline after of the September 11, 2001 terror attacks, the report said. Demand for T-bills reflects how the rising credit crunch is making it hard for companies to roll over their short-term debts. The crunch has put financial shares under severe pressure on Wall Street. With the latest infusion, the Fed has pumped $57 billion in short-term liquidity into a market shaken by the financial industry’s problems linked to subprime mortgages - loans to risky US home buyers who are increasingly defaulting on their mortgages.
The Dow Jones Industrial Average, which tracks 30 top US corporations, fell below 13,000 points for the first time in four months Wednesday. The broader S&P 500 lost 3.3% through Wednesday, wiping out all of its gains in 2007.
The Bank of Japan (BOJ) injected 1.2 trillion yen ($10.41 billion) into the money market Friday in a continued effort to ease the credit crunch caused by the US home-loan market. Japan’s central bank poured liquidity after the key short-term rate rose from its target of 0.5% to 0.54% Friday. It last took action to inject cash August 10 and 13 to ease fears over a credit collapse caused by losses linked to US sub-prime mortgages, or higher-risk home loans.
BOJ supplied the money market with 1.6 trillion yen in two days. After observing the concerns subsided, the bank siphoned off total of 2.1 trillion yen. The fear of credit tightening lingers and the key interest rate rose above its target, which led BOJ to supply cash.
The central bank coordinated the action with similar moves by the US and European central banks as investors, analysts and governments grew concerned that the losses could negatively impact global economic growth and corporate earnings.
Fears of a major shake-out on world stock exchanges, as hedge funds retreat from losing positions, sparked a rout on the London Stock Exchange Thursday, with the leading FTSE 100 index falling by more than 4.1% on the day. Banks and mining shares led the decline in London. A warning that Countrywide, the biggest home loan lender in the United States, was at risk, contributed to the negative sentiment. At the close the FTSE 100 stood at 5859, hitting the lowest level since September 2006, the extent of the losses exceeding the 3.7% fall seen on Friday. Traders said the end of the decline was not in sight, as even financial experts were not able to assess the potential losses facing those active in the US subprime market. There was talk of panic selling of the kind that was beginning to emerge in Asian markets, amid fears that hedge funds might be forced to sell even quality stocks to cover their short-term positions. (monstersandcritics.com)