Monday, August 13, 2007

Major World Markets Rebound

Major world markets rebounded Monday, regaining some territory lost in a global plunge last week, as central banks continued a steady supply of liquidity to soothe rattled investors.

Minutes after Wall Street opened in the United States, the Fed said that it would add at least $2 billion in liquidity in a one-day repurchase.

The European Central Bank, which injected another 47.67 billion euros ($65.3 billion) into the banking system to ease fear in the credit markets, said conditions were "normalizing" _ but some analysts said the bounce could be a short one with continuing worries about a credit crunch.

The Bank of Japan also acted again, injecting 600 billion yen ($5 billion) into money markets to try to bring more stability to the markets.

The U.K.'s FTSE 100 Index rose 2.6 percent to 6,194.70 points, France's CAC-40 gained 1.8 percent to 5,546.11, while Germany's DAX Index advanced 1.5 percent to 7,452.73.

Still, some analysts were cautious. The FTSE-100 lost 3.7 percent on Friday _ its biggest percentage drop in four years.

"It would be naive to think the worst is behind us," said David Jones, chief market analyst at CMC Markets.

Charles Stanley analyst Jeremy Batstone agreed, saying Monday's rebound was unlikely to mark the end of the volatility.

"This entire period of economic expansion has been built on a vast amount of debt," he said. "Increase the cost of that debt, tighten loan conditions and one might be in for a bit more than just risk aversion."

The Nikkei 225, benchmark for the Tokyo Stock Exchange, edged up 0.2 percent to 16,800.05, recouping some of Friday's drop as investors bought back into stocks with strong earnings. Hong Kong's blue chip Hang Seng Index rose 0.45 percent to 21,891.10. South Korea's benchmark stock index rose 1.1 percent to close at 1,849.26.

But there was no firm conviction the volatility of the last few weeks has ended.

"The Hong Kong market is in directionless trade. Aftershocks of U.S. subprime mortgage woes are likely to continue rippling through markets in the Asia-Pacific region," said Peter Lai, director of DBS Vickers Securities Ltd. in Hong Kong.

Yutaka Miura, manager at Shinko Securities in Tokyo, said gains Monday weren't expected to be very big, and most investors kept one eye on the U.S. markets.
"This was mainly a technical rebound from Friday," he said.

The Dow Jones industrials closed out a volatile week Friday, ending with just a 31-point loss for the day and managing to post a gain for the week. On Thursday the Dow had fallen 387 points and extended a series of triple-digit moves that began in late July.

Wall Street opened higher Monday after the Federal Reserve and other central banks added more cash to their banking systems, helping investors set aside some concerns about credit tightness.

Just before the market opened, Goldman Sachs Group announced it had lined up $3 billion in additional funding for one of its biggest hedge funds that has seen its value plunge amid market volatility. The investment bank said its Global Equity Opportunities fund "suffered significantly" as global markets sold off on worries about debt and credit.

Last week, the U.S., European, Australian and Japanese central banks poured funds into money markets as stocks dropped on concerns over U.S. mortgages.

The ECB had provided 95 billion euros ($130 billion) in funds to banks on Thursday and injected a further 61 billion euros ($83.6 billion) on Friday. On Friday, the Bank of Japan injected 1 trillion yen ($8.39 billion; 6.15 billion euros) into money markets to curb rises in a key overnight interest rate.

The chief economist of Germany's DekaBank, Ulrich Kater, said on N24 television that central banks "have the liquidity bottleneck under control."

"It is they who can supply the markets with liquidity ... and they did so to the degree that was necessary last week, and continue to do so," he added. "That of course helps to calm the markets. The markets will continue to function."

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