Fed Rate Cut Helps Soften the Fall (AP) (23-01-2008)

NEW YORK (AP) -- The Federal Reserve announced an emergency interest-rate cut minutes before the starting bell. Nevertheless, the Dow Jones industrial average fell 465 points, of which 300 in the first minute then rallied above 12,000 points before finally closing down by 128 points at 11,971.19.

Despite the relief of the temporary victory, a long-term comeback is dependent on factors much more difficult to achieve, such as a turnaround in the housing market and a return of U.S. consumers to spending, as they are they give considerable support to the economy.

By the close, the Dow had recovered to a loss of 128.11, or just over 1 percent, at 11,971.19.

Before trading began, the Federal Reserve announced the unscheduled cut of both the benchmark federal funds rate by 0.75 percentage points, to 3.5 percent and the discount rate, to 4 percent, also a three-quarter-point cut.

Still, the effect on Wall Street was not overwhelmingly positive: The Standard & Poor's 500 index, the broad market measure most closely followed by traders, fell 14.69, or 1.11 percent, to 1,310.50, while the Nasdaq composite index lost 47.75, or 2.04 percent, to 2,292.27.

Stocks have been beaten down for months amid falling housing prices and a mortgage crisis that began with a stream of failed home loans to consumers with poor credit.

The Dow is down nearly 10 percent since the beginning of the year -- logging its worst first 14 trading days of the year ever. It is down more than 15 percent since its record close of 14,164.53 on Oct. 9, and is at its lowest close since Oct. 17, 2006.

Investors are well aware that housing worries remain: Many adjustable-rate mortgages -- similar to those that went bad last year -- will still be adjusted higher, and home prices are expected to keep falling this year.

Financial companies have lost billions of dollars because of those mortgages, retail sales are falling and companies in general aren't on a spending spree.

Source: AP