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Global stock markets mixed ahead of US Fed rate decision

Global stock markets mixed ahead of US Fed rate decision
AFP
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First Published: Tue, Dec 16 2008. 09 08 PM IST

Ripple effect: A file photo of traders at the Tokyo Stock Exchange. Tokyo closed 1.12% down owing to a weak economy and the Madoff scandal.
Ripple effect: A file photo of traders at the Tokyo Stock Exchange. Tokyo closed 1.12% down owing to a weak economy and the Madoff scandal.
Updated: Tue, Dec 16 2008. 09 08 PM IST
London: World stocks markets were mixed on Tuesday as investors awaited the outcome of a US Federal Reserve meeting which some analysts forecast would cut interest rates close to zero.
The US central bank was expected later on Tuesday to cut the base rate by at least 50 basis points to 0.50%, which would be an all-time low, although some analysts forecast a 0.75 percentage point cut to tackle a recession.
Ripple effect: A file photo of traders at the Tokyo Stock Exchange. Tokyo closed 1.12% down owing to a weak economy and the Madoff scandal.
In late morning trading in Europe, the Frankfurt stock market advanced 1.34%, London gained 0.35% and Paris added 0.64% in value.
In Asia, Tokyo closed 1.12% down and Sydney lost 1% owing to caution over the weak economy and the massive Bernard Madoff fraud scandal, dealers said.
But Hong Kong finished 0.6% higher as investors stayed on the sidelines ahead of the Fed rate call.
“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 a barrel—could weigh on the energy sector,” he warned.
The financial sector also remained under pressure on Tuesday after news that HSBC, Europe’s biggest bank, and other major lenders faced heavy exposure to the alleged $50 billion (Rs2.3 trillion) pyramid scheme said to have been run by one of the biggest names in US investing.
“The tone is reasonably positive but that could change quickly,” said Byron Burke, a broker with ABN Amro Craigs in New Zealand.
The US Federal Open Market Committee was meanwhile expected to cut its base lending rate from the current level of 1% when its two-day meeting concludes later on 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%, below the super-low Japanese rate of 0.3%. While some dealers thought the pre-Christmas lull was beginning, sentiment was affected by the seemingly endless string of bad news coming out of the US.
The allegation of a pyramid fraud against Wall Street legend Madoff took on new dimensions overnight as some of Europe’s biggest banks said they had exposure to his firm, which US authorities said would be liquidated.
European and US stock markets had fallen on Monday as a host of major global banks declared massive exposure to the worsening Madoff scandal.
HSBC said it had exposure of about $1 billion, while Europe’s second biggest bank Santander said it had a $3 billion exposure to Madoff Invest Securities.
Fortis Bank Netherlands said it could lose $1 billion from the alleged scam, even though it had no direct exposure to Madoff’s company.
On Monday, Wall Street’s Dow Jones Industrial Average lost 0.75% while the Nasdaq tumbled 2.1%.
The gloom had mounted on Monday as Japan’s central bank said business confidence had suffered its sharpest drop for three decades.
Meanwhile, there has been no firm progress on a possible bailout for the struggling Big Three US auto makers—General Motors Corp., Ford Motor Co. and Chrysler Llc. The White House said on Monday it was still studying its options.
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 rescue.
The White House has now said it is ready to consider dipping into a $700 billion Wall Street bailout agreed earlier this year.
The global financial crisis and the economic slowdown have hit share markets worldwide hard this year, and every major market has suffered big losses.
The Dow Jones is off 35%, Hong Kong’s Hang Seng is down 46% and the Nikkei in Tokyo has lost almost 44% since the beginning of 2008.
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First Published: Tue, Dec 16 2008. 09 08 PM IST