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While you were sleeping: BusinessWire overnight wrap

Wednesday 6th August 2008

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Oil fell to a three-month low on rising supply and falling demand, and the Federal Reserve held its key interest rate steady, bolstering investor confidence in stocks which helped trigger a rally on Wall Street.

While citing "upside risks" to inflation in the US, the Fed's policy-making committee said it growth remained weak and it was expecting inflation to moderate. Many market watchers interpreted the committee's statement as a sign that US rates would remain on hold into the first three months of 2009.

Citigroup and Bank of America led financial shares to their best gain in a week. Sears Holdings rallied the most since January and Kohl's posted its steepest advance in a year as crude tumbled for a second day.

Oil dropped $2.81 to $118.60 a barrel on speculation demand may be reduced by economic slowdowns in the US and Europe. Crude futures have lost 18% since their closing record on July 3.

The S&P 500 added 35.87, or 2.9%, to 1,284.88. The Dow Jones Industrial Average rallied 331.62, or 2.9%, to 11,615.77. The Nasdaq Composite Index jumped 64.27 to 2,349.83. Almost five stocks advanced for each that fell on the New York Stock Exchange.

General Motors Corp. added 59 cents, or 5.8%, to $10.69. Carnival Corp., the largest cruise-line operator, jumped $2.85, or 7.6%, to $40.21. Procter & Gamble Co. added $2.15 to $67.97 after the company reported earnings excluding some items of 80 cents a share, more than the 78 cents estimated by analysts.

While stocks rallied on the Fed's comments, bonds lost some of their safe-haven lustre and were held down by pending new supply.

Bonds Weaken

The Fed committee said a shrinking labour market and financial-market strains would hinder economic growth, underscoring speculation that central bankers won't try to curb price gains by raising borrowing costs this year, according to Bloomberg News.

The benchmark 10-year note's yield rose four basis points, or 0.04 percentage point, to 4.01% at 3:12pm in New York, according to BGCantor Market Data. The Treasury will sell $17 billion of the notes in a quarterly auction tomorrow.

The yield on the two-year note rose one basis point to 2.54%.

Traders before the Fed meeting saw a 93% chance the central bank would leave the target rate for overnight lending between banks at 2% today, futures contracts on the Chicago Board of Trade showed.

The dollar rose to a seven-week high $1.5462 per euro in late New York trading from $1.5576 yesterday after the Fed's statement and as oil declined.

The ICE Futures US dollar index, a measure of the currency's performance against a basket of six currencies, rose to as much as 73.990, the highest since mid-June.

In Europe, stock fell for the first time in four days after better than expected earnings at Societe Generale SA and Air France-KLM Group. The Dow Jones Stoxx 600 Index rose 2.7% to 285.01, the biggest gain in two weeks.

European government bonds rose amid expectations the European Central Bank will refrain from raising rates this week as the region's economic growth wanes.

German 10-year bund fell 3 basis points to 4.31%. The price rose 0.18, or 1.8 euros, to 99.48.

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