While you were sleeping: Bernanke sparks hope

Wednesday 5th October 2011

Concern about Greece after politicians delayed a second bailout to the debt-laden nation weighed on equities even as investors drew hope from Federal Reserve chief Ben Bernanke’s promise that the U.S. central bank is ready to act to save the world’s largest economy.

In Europe, the Stoxx 600 Index closed the day with a 2.8% drop.

Shares of Dexia SA plunged to a record low as European finance ministers were considering making banks take bigger losses on Greek debt and postponed a crucial aid payment to Athens until mid-November.

Greek Finance Minister Evangelos Venizelos said the country had enough cash to cope until then and insisted that euro zone ministers were not preparing for a Greek default, despite the ominous delay.

"There is no discussion of default," Venizelos told a news conference on returning to Athens on Tuesday, according to Reuters.

In afternoon trading in New York, the Dow Jones Industrial Average dropped 1.09% and the Standard & Poor's 500 Index fell 0.62%. The Nasdaq Composite Index was up 0.33%.

Fed Chairman Ben Bernanke said the central bank’s policy committee was ready to take more measures to boost an economy “that is close to faltering.”

"The Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability," Bernanke told the Joint Economic Committee of Congress.

As a result, the euro rose 0.7% to US$1.3267. It gained 1% to 101.99 yen.

“Bernanke did hold out the possibility of further Fed action,” Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York, told Bloomberg News.

“It’s largely a reiteration of what he’s said before, but it’ll reaffirm that they’re not out of bullets. People are very short the euro and there is some short-covering as well.”

The greenback strengthened 0.3% to 76.88 yen. The U.S. currency slipped 0.05% against a basket of major counterparts.

U.S. Treasuries fell as Bernanke’s comments raised the spectre of inflation which erodes the value of fixed-income assets. Yields on 30-year bonds rose five basis points to 2.78% at 1.16pm in New York, according to Bloomberg Bond Trader prices.

Further clues on the strength of the economy will come on Friday when the Labor Department releases monthly employment figures. Economists in a Reuters poll forecast a minor gain of 60,000 jobs for September.

Goldman Sachs Group Inc has lowered its global growth forecast for this year and next, forecasting recessions in Germany and France.

(BusinessDesk)

BusinessDesk.co.nz

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