The Fed springs fresh surprise

Alan Greenspan's first rate cut sent shares surging

The US Federal Reserve surprised the markets again on Thursday, slipping in a surprise 0.25% cut in the discount rate, after the close of regular trading.

The discount rate, which it charges on direct loans to commercial banks, is now 5.5%.

The move came after the Fed cut interest rates by 0.5% to 6%.

"This is an amazing move by the Fed, for them to do this after hours is relatively shocking," said Art Hogan, analyst at Jefferies & Co.

"One would almost guess that they've already gotten a look at the [US] employment figures coming out Friday," he added.

Official US December employment figures are due to be released Friday, at 1330 GMT.

The second surprise rate cut came too late to affect trade on the US's major share indices, the technology-heavy Nasdaq and the broad based Dow Jones Industrial Average, which ended the day down.

The Fed action pulled the psychology of investors out of the depth of depression and despair

Scott Bleier, Prime Charter Ltd

The Nasdaq was 49.86 points lower, or 1.91%, at 2,566.83.

While the Dow dropped 33.34 points, or 0.30%, to 10,912.41.

Earlier in the day, President-elect George Bush had said that his proposed $1.3 trillion tax cut plans may have to be speeded up to help kickstart the slowing US economy.

"I think that tax relief is necessary; the question is how fast we implement it," said Mr Bush, after a meeting in Austin, Texas with company executives.

European markets

The lack of excitement on the US markets proved sufficient to cheer investors in London and Paris, where European stock markets put in a strong finish.

Many analysts had feared that Wall Street markets would give up much of the ground gained on Wednesday, when a surprise decision to cut US interest rates triggered a surge in equities worldwide.

In London, the FTSE 100 index of leading shares overcame midday nervousness to end 2.4% up on Thursday.

The benchmark Paris indicator also revived in late afternoon trade to close 2.3% higher.

Technology stocks proved particularly firm, with BT, Marconi and Colt Telecom, which rose 18%, among the most popular shares in London.

While German shares remained lacklustre throughout most of Thursday, the Frankfurt bourse closed down 0.91%.

In the US, where tech stocks rose on Wednesday, shares in financial firms were among the strongest in the day's trade, buoyed by results from investment bank Lehman Brothers.

Rate cut

Wednesday's surprise cut in US interest rates cheered investors by easing fears of a recession in the country's economy, the world's biggest.

The technology-dominated Nasdaq stock market surged 14% to record its biggest one-day gain yet.

Most Asian stock markets followed suit on Thursday, with Japan's stock market the only notable exception.

However, Tokyo stocks closed higher on Friday - for the first time in five sessions - as the yen's continuing weakness prompted investors to snap up major exporters such as Sony and Toyota.

The benchmark Nikkei average closed up 176.12 points or 1.29% at 13,867.61.

Surprise cut

The decision by the US Federal Reserve to cut rates came four weeks earlier than expected, stunning analysts across the world.

What matters to us is the outlook for the British economy. We set interest rates for the UK, not the US

Mervyn King, deputy governor, Bank of England

The move increased pressure on other central banks to cut interest rates in an attempt to head off a global economic slump, with British union leaders among those calling for reciprocal action in the UK.

But Mervyn King, deputy governor of the Bank of England, dashed hopes of an early rate cut.

"What matters to us is the outlook for the British economy," he said. "We set interest rates for the UK, not the US."

The Bank's rate setting committee will hold its next monthly meeting next week.

The European Central Bank decided at a monthly meeting on Thursday to keep rates on hold.

Dollar movement

The late rise in shares on Wednesday followed a weak entrance by stock markets into 2001.

The Nasdaq recorded a 7.2% loss on Tuesday, bringing it back to levels last seen two years ago.

The rate cut also temporarily boosted the dollar: the euro initially slid to $0.93, before renewing its recent rise to stand at $0.9496 after the US markets closed on Thursday.