Wall Street up on rate cut, Fannie and Freddie gain

Wall Street up on rate cut, Fannie and Freddie gain

New York: US stocks rose on 19 September adding to the previous session’s rally, the biggest in more than four years, as investors bet the Federal Reserve’s aggressive rate cut would help prevent an economic slowdown.

The Federal Reserve slashed its benchmark federal funds rate by half a percentage point on 18 September to cushion the economy from ailing credit markets. Global equities powered higher after the Fed’s move.

In more good news for the mortgage industry, shares of Fannie Mae and Freddie Mac soared after the regulator for the two mortgage finance companies said it will provide the companies with more flexibility to manage their investment portfolios.

But amid the rally, more news of fallout from credit market turmoil came from investment bank Morgan Stanley, whose earnings missed analysts’ estimates, though its shares rose.

“The Fed’s action was pretty decisive and bold yesterday and this is clearly follow-through -- to the extent that markets are even overlooking that Morgan Stanley’s not-so-great quarter," said Scott Vergin, portfolio manager at Thrivent Financial in Minneapolis.

The Fannie Mae, Freddie Mac news was “very positive for the mortgage market," he added.

The Dow Jones industrial average was up 96.24 points, or 0.70%, at 13,835.63. The Standard & Poor’s 500 Index was up 14.03 points, or 0.92 %, at 1,533.81. The Nasdaq Composite Index was up 21.48 points, or 0.81%, at 2,673.14.

Fannie and Freddie were two of the biggest gainers on the S&P 500 index. Fannie Mae’s shares were up 3% to $64.45 and Freddie Mac’s stock gained 2.5% to $61.01.

Morgan Stanley was the second major investment bank this week to report earnings, coming hot on the heels of Lehman Brothers Holdings Inc, which reported earnings that beat Wall Street’s estimates on Tuesday. Bear Stearns Cos Inc and Goldman Sachs round out the brokerage earnings week on Thursday.

Morgan Stanley shares, after initially falling more than 2% before the bell, rose 0.6% to $68.88. Shares of Bear Stearns gained 1.1% to $120.47, Lehman Brothers gained 1.8% to $65.65 and Goldman Sachs climbed 2.4%.

Shares of Corning Inc rose after the maker of fiber optic cable and glass for flat panel displays said its third-quarter earnings would be at the high end of its previous forecast.

Concerns about price rises after the Fed’s rate cut were allayed after government data showed core inflation rose as expected last month and matched a rise in July.

In other data, the Commerce Department said US housing starts in August were slightly lower than expected by economists. It was the lowest pace for housing starts since June 1995.