European Markets Rebound on Fed Rate Cut

LONDON -- European stocks rebounded Friday and the Dow Jones industrial average soared after the U.S. Federal Reserve cut the primary discount rate, a dramatic move aimed at easing worries about tightening credit and calming global financial markets.

The Fed action came too late for Asian markets, which saw broad declines Friday.

The U.K.'s benchmark FTSE 100 surged 3.4 percent to 6,060.60. France's CAC 40 index rose 3.2 percent to 5,435.09 and Germany's DAX index was up 2.7 percent to 7,463.90.

In the U.S., stock futures jumped, erasing an early decline, as the Fed cut the discount rate to 5.75 percent from 6.25 percent, declaring that "downside risks" to the economy have increased appreciably.

That stemmed declines in markets that have suffered sharp declines over the past week amid turmoil in the credit markets. Central banks around the world have poured billions in additional liquidity into the banking system in recent days, but Friday's rate cut marked the Fed's most dramatic move yet.

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"This move should be seen as more of a reassurance step, should interbank liquidity begin to dry up again," said ING economist Rob Carnell.

Earlier, in Asia, markets tried to buck the trend on early bargain-hunting, but then fell across the board. The Nikkei 225 index in Tokyo dropped 5.4 percent to end at 15,273.68, its lowest close in a year.

Hong Kong's blue chip Hang Seng Index fell 1.4 percent, and the Korea Composite Stock Price Index lost 3.2 percent after dropping 6.9 percent the previous session.

China's shares, which had been hitting new daily highs recently, fell for a second day Friday. The benchmark Shanghai Composite Index ended down 2.3 percent at 4656.57 points, adding to a 2.1 percent loss the previous day. The Shenzhen Composite Index fell 1.6 percent to 1297.21.

Credit Suisse Chief Strategist Shinichi Ichikawa said any bad news in the near future, such as a bank faltering, could shake up markets across the world.

"The next couple of weeks will be a very tough time for global financial markets," he said.

U.S. stocks opened sharply higher Friday, with the Dow Jones industrial average jumping 280.53 points to 13,126.31. The Nasdaq Composite was up 52.15 to 2,503.22 and the Standard & Poor's 500 index has gained 37.60 to 1,448.87.

Wall Street had a late recovery to finish mixed Thursday — with the Dow Jones Industrial Average closing down just 16 points after falling more than 340 points during the day.

Earlier Friday, Japan's central bank injected 1.2 trillion yen ($10.5 billion) into money markets — the third injection this week and triple the amount it injected the day before — in a bid to curb rises in key interest rates—

A weaker dollar led Asian stocks downward, as a lower dollar hurts Japanese exporters by reducing the value of their overseas earnings when converted back into local currencies. A weak dollar also makes Japanese exports more expensive abroad.

Toyota Motor Corp. fell 7.2 percent Friday, and Sony Corp. fell 6.8 percent. Suzuki Motor Corp. fell 11 percent and gamemaker Nintendo Co., which relies on overseas sales for much of its revenue, fell 9.7 percent.

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