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Us government may take part ownership in banks By MARTIN CRUTSINGER and JEANNINE AVERSA, AP Economics Writers
5 minutes ago



News that the Bush administration is considering taking part ownership in a number of U.S. banks helped restore a relative calm over global financial markets Thursday.

The aim of such a move would be to thaw the lending freeze that threatens to push the world's economy into recession. It comes after rampant fear about the global economy sent investors scurrying on Tuesday for safety in U.S. government securities despite an orchestrated round of rate cuts by the world's central banks.

Investors also were hoping that selling, which gave the Dow its ninth straight day of losses, was overdone. Wall Street began the day higher, but then slid after declines in some blue chip names like General Motors Corp. weighed on the markets.

An administration official, who spoke late Tuesday on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.

Treasury Secretary Henry Paulson told reporters that Treasury was moving quickly to implement the $700 billion rescue effort and he specifically mentioned reviewing ways to bolster the capital of banks.

"We will use all the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size," Paulson said at a Wednesday news conference.

His statements came on the heels of Britain's move to pour cash into troubled banks in exchange for stakes in them — a partial nationalization.

Asked whether he would try something like the British plan, Paulson said: "We have a broad range of authorities and tools. ... We've emphasized the purchase of liquid assets, but we have a broad range of authorities. And I'm confident we have the authorities we need to work with going forward."

The Federal Reserve on Wednesday cut its target for the benchmark rate on overnight loans between banks to 1.5 percent. The cut from 2 percent took the rate to its lowest level in more than four years.

In an unprecedented coordinated move, central banks in England, China, Canada, Sweden and Switzerland and the European Central Bank also cut rates after a series of high-stakes phone calls over several days between Fed Chairman Ben Bernanke and his counterparts.

The Fed acted in concert with the European Central Bank to make emergency interest rate cuts after the Sept. 11 terror attacks in 2001. But Wednesday's cuts were unique in the number of nations that participated, the Fed said.

On Thursday, rates in South Korea, Hong Kong and Taiwan were also trimmed and Asian markets appeared to find their feet after a brutal round of selling Wednesday.

Tokyo's benchmark Nikkei 225 index rose more than 1 percent but fell back to close down 0.5 percent to 9,157.49, a five-year low. That followed a 9.4 percent plunge Wednesday, its biggest one-day drop since the 1987 market crash.

Hong Kong's Hang Seng index gained 3.6 percent to 15,985.39, while South Korea's key index rose 0.6 percent after earlier rising as much as 2.9 percent.

European markets shed some early gains Thursday ahead of Wall Street's opening, but remained in positive territory, with British banking stocks in particular enjoying a strong rally in the wake of the government's $865 billion plan to buy stakes in banks .

But all eyes are on now on Wall Street, where investors hope markets are getting closer to finding a bottom after the worst five-day rout since 1987. On Wednesday, the Dow gave up 189 points to close at — and is now down about 35 percent from its high of 14,164.53 reached exactly one year ago.

In midmorning trading, the Dow Jones industrial average fell almost 1 percent. GM was the biggest decliner in the Dow.

Broader stock indicators were mixed. The Standard & Poor's 500 index slipped 1.2 percent and the Nasdaq composite index rose 0.2 percent.

The tentative move back into stocks Thursday siphoned some money away from safe haven investments like government bonds and gold.

Demand for short-term Treasurys waned, with the yield on the three-month Treasury bill, which moves opposite its price, rising to 0.69 percent from 0.63 percent late Wednesday. Longer term debt also fell, with the yield on the 10-year note rising to 3.74 percent from 3.65 percent late Wednesday.

For millions of Americans, the Fed's cut means borrowing money becomes cheaper. Home equity loans, credit cards and other floating-rate loans all fluctuate depending on what the Fed does.

Bank of America, Wells Fargo and other banks cut their prime rate by half a point to 4.5 percent, also the lowest in more than four years, after the Fed announced its decision early Wednesday.

Fed watchers believe the central bank might cut rates further when it meets later this month, and perhaps again in December, in hopes of cushioning the blow if the United States falls into recession.

Even the coordinated action may not break the fear that has gripped investors across the world as jobs evaporate and retirement savings dry up. Banks may still be inclined to hoard cash, and until they decide to lend again the crisis is not likely to let up.

If anyone needed evidence, major American retailers turned in dismal sales figures for the third quarter — further proof that consumer spending, the lifeblood of the economy, is sputtering.

The government reported Thursday that jobless claims fell by 20,000 to 478,000 last week, within economists' expectations. The claims still remain at elevated levels due to the struggling economy, though.

The Fed's interest rate cut was a change in course. It had held rates steady because of inflation concerns. Since the Fed had put a stop to interest-rate cuts in June, the economic outlook has deteriorated.

"The pace of economic activity has slowed markedly in recent months," the Fed said. "Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."

Although inflation has been running higher, the Fed believes the recent drop in prices for oil and gas, and the weaker prospects for economic activity, have reduced the threat it poses to the economy.

The credit markets, which have been remarkably tight for weeks, showed only small signs of loosening. Rates on commercial paper, the short-term debt companies issue to raise cash for everyday expenses, went down. But the rate banks charge each other for loans went up.

The Fed also reduced its emergency lending rate to banks by half a percentage point, to 1.75 percent. Given the intense credit crisis, banks have been borrowing more under what is known as the discount window.

___

Associated Press writers Joe Bel Bruno and Anne D'Innocenzio in New York, Christopher S. Rugaber in Washington and Pan Pylas in London contributed to this report.



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~*~*~*~*~*~*~*~*~*~*~*~*~*~*~**~*Stocks fluctuate as economic worries dog investors By TIM PARADIS, AP Business Writer
1 hour, 30 minutes ago



Stocks fluctuated Thursday as Wall Street weighed the prospects for the economy after IBM Corp. affirmed its profit forecast and investors hoped the government might take ownership stakes in banks to help stabilize the financial industry.

But declines in some blue chip names like General Motors Corp. weighed on the markets and hurt the Dow Jones industrial average. Broader market gauges were mixed.

Investors looked to recover from near-panic selling that cascaded through global markets in the past week. Stocks around the world moved mostly higher one day after the Federal Reserve and other leading central banks cut interest rates to help unclog the credit markets and stimulate the global economy.

There's some hope by investors that Wall Street is getting closer to finding a bottom after the worst six-day rout for the Standard & Poor's 500 index since 1987. On Wednesday, the Dow gave up 189 points to close at 9,258.10 — and was down about 35 percent from its high of 14,164.53 reached exactly one year ago.

"I think the base driver today is that we're oversold," said Arthur Hogan, chief market analyst at Jefferies & Co. "You can't do that too long before things turn around, and I think the bottom of this market gets put in this week."

While a rate cut can take up to a year to work its way through the economy, the move was aimed as a boost to investor sentiment. Perhaps adding to that, there were some signs Thursday that corporate earnings might come in better than expected. IBM, one of the 30 stocks that make up the Dow industrials, posted third-quarter results that beat forecasts and affirmed its full-year earnings forecast.

Investors also appeared cheered by a plan being considered by the Bush administration to invest in hobbled U.S. banks as a way to stabilize the financial sector. An administration official, who asked not to be identified because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and obtain ownership shares in return.

Britain rolled out a similar plan, though no U.K. bank has received any investments. In Iceland, the government now has control of all three of the country's major banks as it struggles to contain the troubles there.

Wall Street also gained some confidence after the government reported applications for unemployment benefits dropped last week from a seven-year high. The Labor Department's report matched projections, though claims still remain at elevated levels.

In midmorning trading, the Dow Jones industrial average fell 69.85, or 0.75 percent, to 9,188.25. GM was the biggest decliner in the Dow, falling $1.24, or 18 percent, to $5.67.

Broader stock indicators were mixed. The Standard & Poor's 500 index slipped 4.19, or 0.43 percent, to 980.75, and the Nasdaq composite index rose 9.83, or 0.56 percent, to 1,750.16.

Demand for short-term Treasurys waned, with the yield on the three-month Treasury bill, which moves opposite its price, rising to 0.77 percent from 0.63 percent late Wednesday. Longer-term debt prices also fell, with the yield on the 10-year note rising to 3.76 percent from 3.65 percent late Wednesday.

Investors will also be watching to see what effect short selling will have on the market now that a three-week ban imposed by regulators has expired. Some analysts believe the unprecedented ban on short selling — an effort to bolster investor confidence amid the worst financial crisis since the stock market crash of 1929 — did more harm than good at a time of historic market volatility.

Meanwhile, oil prices looked for direction as traders weighed fears that a world recession will crimp demand against speculation that OPEC may cut output to keep prices from falling too far. Light, sweet crude rose 14 cents to $89.09 per barrel on the New York Mercantile Exchange.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 386.7 million shares.

The Russell 2000 index of smaller companies fell 6.77, or 1.24 percent, to 539.80.

In Asia, Japan's Nikkei 225 closed down 0.50 percent while the Hang Seng added 3.31 percent. In afternoon trading, European bourses advanced, with Britain's FTSE-100 up 1.65 percent, Germany's DAX up 0.86 percent, and France's CAC-40 up 0.34 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

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