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Global stocks mixed ahead of US interest rate decision
2008-12-16
LONDON (AFP) - World stocks markets were mixed on Tuesday as investors awaited the outcome of a US Federal Reserve meeting that some analysts forecast would see interest rates cut 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 percent, which would be an all-time low, although some analysts forecast a 0.75 percentage point cut to tackle a recession. In late morning trading in Europe, the Frankfurt stock market advanced 1.59 percent, London gained 0.96 percent and Paris added 1.52 percent in value. In Asia, Tokyo closed 1.12 percent down and Sydney lost one percent owing to caution over the weak economy and the massive Madoff fraud scandal, dealers said. But Hong Kong finished 0.6 percent higher as investors stayed on the sidelines ahead of the Fed rate call. Wall Street reopens at 1430 GMT. "European equity markets are set to 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 dollars 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 dollar 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 1.0 percent when its two day meeting concludes later 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 percent, below the super-low Japanese rate of 0.3 percent. While some dealers thought the pre-Christmas lull was kicking in, sentiment was affected by the seemingly endless string of bad news coming out of the United States. The allegation of a pyramid fraud against Wall Street legend Bernard 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 one billion dollars, while Europe's second-biggest bank Santander said it had a three billion dollar exposure to Madoff Invest Securities. Fortis Bank Netherlands said it could lose one billion dollars from the alleged scam, even though it had no direct exposure to Madoff's company. Wall Street's Dow Jones Industrial Average lost 0.75 percent while the Nasdaq tumbled 2.1 percent. The gloom 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 giants -- General Motors, Ford and Chrysler. The White House said 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 dollar rescue. The White House has now said it is ready to consider dipping into a 700-billion dollar 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 percent, Hong Kong's Hang Seng is down 46 percent and the Nikkei in Tokyo has lost almost 44 percent since the beginning of 2008.
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