The disruptions in the credit markets were at the heart of the recent market volatility, as the evaporation in lending made it difficult for businesses and consumers to get loans, and sparked widespread panic about the economy's ability to avoid a severe downturn. While lending has eased somewhat, analysts contend that the state of the credit markets will remain one of the biggest land mines in the weeks ahead.
The key bank-to-bank lending rate known as Libor fell to 2.71% from Monday's rate of 2.86% for three-month dollar loans. A fall in the London Interbank Offered Rate indicates that banks are more willing to lend to one another; a month ago, when the credit markets were paralyzed by banks' fear that they wouldn't be repaid on loans, it stood at 4.33%.
Investors' demand for short-term government debt remained high, however, a sign that they are still cautious and willing to take a very small return on their investments in exchange for security. The yield on the three-month Treasury bill, seen as one of the safest assets around, rose to 0.49% from 0.47% Monday. A low yield indicates high demand.
The yield on the benchmark 10-year Treasury note fell to 3.73% from 3.92% late Monday.
The dollar fell against most other major currencies, while gold prices rose.
Overseas, Japan's Nikkei index soared 6.27%, Hong Kong's Hang Seng Index edged up 0.28%. Britain's FTSE 100 rose 4.42%, Germany's DAX index jumped 5.00%, and France's CAC-40 advanced 4.62%.