Dow up 490 points: Stocks soar after central banks' moves
— -- Stocks soared Wednesday after central banks around the world agreed to pump more liquidity into European banks, an effort designed to loosen credit and stimulate economic growth in Europe and prevent its debt crisis from unhinging the global economy.
The Dow Jones industrial average rocketed 490 points (4.2%) to 12,045 after sharp gains of 3% to nearly 5% on European exchanges. The Dow's rise - it's biggest one day gain since March 2009 - was mirrored by fat gains by the Standard & Poors 500 and Nasdaq composite index.
Wednesday's rally was burnished by some bright U.S. economic news: The number of Americans signing contracts to buy homes surged 10.4% in October. A separate report found private employers added 206,000 jobs in November — nearly 60% above some analysts' expectations — for the biggest gain since December 2010. And China boosted global markets by cutting reserve requirements for its banks, to ease lending and keep that economy humming.
But the primer igniting Wednesday's stock gains was the coordinated move by the Federal Reserve, the European Central Bank and other central banks to reduce the cost of short-term dollar loans to banks, called liquidity swaps, by a half percentage point starting next Monday.asdfsadfasdfa
The central banks' effort is aimed at easing strains on financial markets and making it easier for consumers and businesses to access credit. The move doesn't solve Europe's continuing debt crisis, but could mitigate a credit crunch by making it easier for banks to get and lend money.
Fears of deeper financial turmoil in Europe have already left some European banks dependent on central bank loans to fund their daily operations. Commercial banks are wary of lending to them for fear of not getting paid back. Such constraints on interbank lending can hurt the wider economy by making less money available to lend to businesses.
The decision to cut the interest charged on the dollar swaps was taken by the Federal Reserve Monday morning.
"We welcome and support the actions taken by central banks around the world to help ease pressure on the European financial system and help foster the global economic recovery," U.S. Treasury Secretary Timothy Geithner said in a statement Wednesday.
Investors, hopeful that the central bank actions could avert a recession in Europe that would derail a shaky U.S. economy, applauded the move.
"This is a step toward easing some of the fear factors over a potential freezing of credit in Europe,'' says Peter Cardillo of Rockwell Global Capital.
While money managers such as Michael Holland say Wednesday's gains show how ripe the market is for a big upward move, others say the rally was influenced by traders who had been betting on more declines in stock prices. When news of the central banks' efforts pushed stocks higher, they were forced to buy stocks to cover their bets, says Rod Smyth of Riverfront Investment Group.
But others noted that the central banks' move does little to resolve the debt problems at the heart of the matter.
"Europe is still in crisis containment mode, not crisis resolution mode,'' says Samy Muaddi, a vice president at T. Rowe Price. "It's just a marginal step forward. We still have the same concerns we did yesterday."
