Midday Market Update: Fed Plan Boosts Markets

By Jennifer Yousfi
Managing Editor

News that the U.S. Federal Reserve will offer $200 billion in Treasuries in exchange for debt that includes mortgage-backed securities, increasing liquidity in the financial industry, spurred the markets to their largest rally in five weeks today (Tuesday).

"What the move really did is begin to provide some liquidity back into credit markets,'' Kevin Cronin, head of investments at Putnam Investments in Boston, with $185 billion in assets under management, told Bloomberg News. "It's provided some oil to the engine on the credit side, that's one of the things the equity market has recognized."

The markets opened strong after the announcement with all three indices up by over 2% in early morning trading. As the day progressed, some of those gains were pared back, however at midday all three indices had posted solid gains.

At noon ET today, the blue-chip Dow Jones Industrial Average Index had an increase of 155.98 points (1.33%), to trade at 11,896.13. The tech-laden Nasdaq Composite Index rose 28.74 points (1.32%), to reach 2,198.08. And the broader Standard & Poor's 500 Index had gained 14.81 points (1.16%), to settle at 1,288.18.

All sectors were up, with the basic materials (2.54%) and financial (2.38%) sectors posting the biggest gains.

Citigroup Inc. (C) led the financial blue-chip rally with an increase of over 4%. Shares of mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) were both up over 3%.

In overseas markets, Japan's Nikkei Index had a 126.15-point increase to close at 12,658.28. Hong Kong's blue-chip Hang Seng Index increased 290.30 points to close at 22,995.35.

In Europe, major indices were rallied on news of the Fed's plan to boost liquidity in late afternoon trading. The Paris-based CAC40, London's FTSE 100, Madrid's IBEX 35 and the Frankfurt-based DAX all posted gains.

At midday, the dollar had gained ground against the euro [up 0.366%], the yen [up 1.861%] and the pound sterling [up 0.275%].

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