Dow Bounces Back From Early-Morning Plunge
Category: News and Politics


Dow Bounces Back From Early-Morning Plunge
Asian Markets Tumble On U.S. Worries

POSTED: 3:31 am EST January 22, 2008
UPDATED: 4:30 pm EST January 22, 2008


Wall Street struggled to steady itself Tuesday, climbing back from an early plunge after the Federal Reserve implemented an emergency interest rate cut in hopes of restoring stability to a faltering U.S. economy. The Dow Jones industrials, down 465 points at the start of the session, recovered to a loss of more than 120 points.

The Fed lowered its target for the federal funds rate three-quarters of a point to 3.5 percent, the first cut of that size since 1984. The discount rate, the interest it charges to lend directly to banks, was cut to 4 percent comes a week before the central bank's regularly scheduled meeting.

In a statement on its Web site, the Federal Reserve took the action in view of a weakening economic outlook and increasing downside risks to growth.

"While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households," the statement said. "Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

It was the Fed's first move between scheduled meetings since the markets reopened after the Sept. 11 terrorist attacks in 2001. The rate cut was the biggest one-day rate move by the Fed since it lowered rates by a full percentage point in December 1991, when the country was trying to emerge from recession.

The move came as global stock markets extended their shakeout into a second day on Tuesday.

The declines in Asia come amid worries that a possible U.S. recession could cause a worldwide economic slowdown.

Japan's benchmark Nikkei index was down 5.65 percent at the close after dropping almost 4 percent Monday. Tuesday's drop was the worst one-day loss since Sept. 11, 2001.

Trading was halted in India when the Sensex index plummeted almost 10 percent within minutes of opening. Hong Kong's Hang Seng index dropped 8 percent by midday after diving 5.5 percent the day before.

A senior economist in Tokyo said chances are slim for stocks to bounce back without some positive -- even "drastic" -- measures from the U.S. government.

Oil prices have declined amid expectations that slower U.S. growth will weaken demand for crude.

The U.S. markets were closed Monday in observance of the Martin Luther King Jr. holiday.

Stimulus Package Needed

In the wake of the sharply lower opening, the White House said President George W. Bush isn't ruling out a larger economic stimulus package than the $150 billion already envisioned.

Treasury Secretary Henry Paulson said Congress and the White House need to agree quickly on a package of tax cuts and other measures to boost the economy.

Paulson told the U.S. Chamber of Commerce Tuesday morning "time is of the essence" and that Bush "stands ready to work on a bipartisan basis" to enact legislation as soon as possible.

House Speaker Nancy Pelosi and leaders in both parties are meeting with Bush at the White House Tuesday to discuss a stimulus bill.

The package presumably would involve tax rebates, business tax cuts and funding for a Democratic-led call for additional food stamp and employment aid.


Previous Stories:
January 21, 2008: European Markets Follow Asia's Lead


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