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Wednesday, 6 November, 2002, 21:45 GMT
US shares end higher after rate cut
Financial markets opened with stocks seeking a direction in advance of the Federal Reserve Banks decision on interest rates.
Traders moved shares higher after the rate decision
US stocks have ended Wednesday's trading higher following a decision by the US central bank to lower its key interest rate by a half-percent.

In post-Election Day trading, the Dow Jones industrial average advanced 93 points to end the day at 8771, while the technology-weighted Nasdaq gained 18 points to close at 1419.


Investors are facing a challenging environment

Jack Caffrey, equity strategist
In a roller-coaster session - typical of Wall Street trading in recent weeks - both market measures wavered between wins and losses throughout the day.

Immediately following the release of the decision at 1915 GMT, shares surged higher, with the Dow industrials gaining 78 points, while the Nasdaq advanced 7 points.

Shortly thereafter, however, traders began a sell-off sparked by fears the Federal Reserve's dramatic and unexpected 0.5% rate cut signalled the US economy may be sicker than believed.

Roller coaster

"Investors are facing a challenging environment," said Jack Caffrey, equities strategist at J P Morgan Private Bank.

"On the one hand, they want higher liquidity associated with lower interest rates, but on the other hand, they don't want the negative implication ... that the economy is becoming bleaker," he said.

Early in the day, stocks rallied in response to Republicans retaking of the Senate and furthering its hold on the House of Representatives, following Tuesday's mid-term elections.

Traders pushed shares higher in the belief Republican control would result in less legislation and fewer restrictions than if Democrats had maintained control of the Senate

By afternoon, prior to the Fed's decision, however, shares edged lower in anxious anticipation of the interest-rate call, before ending the day higher.

Fears of the unknown

In rendering its decision the Fed said economic data confirmed greater uncertainty and cut rates in the hope of stimulating the economy.

But Fed governors also hinted in their comments accompanying the decision there may be no more cuts for a while, saying economic risks were balanced between weakness and inflation.

With the move, the Fed Funds rate now stands at just 1.25%.

The rate reduction was unanticipated with a majority of analysts expecting the Federal Reserve to cut the Federal Funds rate, the interest banks charge one another for overnight loans, by just 0.25%.


Economic indicators

Fears and hopes

US Fed decisons

IN DEPTH
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