North American markets rebound in volatile trading

Friday was another volatile day on the markets in Toronto and New York as investors wondered if the worst of the market fallout was behind them.

Traders and specialists work the floor of the New York Stock Exchange Friday morning.
(David Karp/Associated Press)

In Toronto, the S&P/TSX composite index briefly dipped into negative territory in mid-morning trading, after opening more than 300 points higher. 

By the close, the index was up 200.88 points at 13,049.58 — reversing Thursday's 200.06 point drop. 

All sectors ended the day in positive territory, with the biggest gains in IT stocks, energy, financials, and health care.

In New York, the Dow Jones industrial average gained more than 300 points in the first few minutes of trading, but later trimmed that by the close to a gain of 233.30 points to 13,079.08.

The Federal Reserve, the U.S. central bank, announced an interest-rate cut "to promote the restoration of orderly conditions in financial markets."

The Fed approved a cut of half a percentage point, to 5.75 per cent, in its discount rate on loans to banks. Many analysts said that was the trigger for the early market rally.

The Fed cited increased economic uncertainty and the risk that business growth will be hurt. It did not change its much-watched federal funds rate.

In a morning commentary, BMO Capital Markets economist Robert Kavcic said the worst of the turmoil may be coming to an end.

"While there will indeed be more volatility ahead, [the] front-page headlines are a good sign that sentiment is approaching panic levels necessary to start forming a bottom — though it probably won’t happen overnight," he said.

Businessmen pass an electronic stock price board as Japanese stocks fell more than five per cent to a one-year low on Friday afternoon.
(David Guttenfelder/Associated Press)

Patricia Croft, chief economist of Phillips Hager & North Investment Management, said Canadian markets fared worse than U.S. markets on Thursday because of fear that a U.S. economic slump would hurt commodity prices, and people are no longer willing to take chances.

"For years markets have embraced risk. Now they're afraid of risk," she said.

"Commodities have been in part a speculative play, so a lot of these positions are being unwound, and that really hit the commodity sector. Canada of course is rich in natural resources, but it worked to our detriment yesterday."

The Toronto market dropped 200 points Thursday, or 1.5 per cent, as commodity-based stocks took big slides.

Up-and-down day

In Europe, where markets had been down, share prices leapt on news of the Fed's move.

Europe's FTSEurofirst 300 rose to stand 1.7 per cent higher, Britain's FTSE 100 was up 3.5 per cent, Germany's DAX was up 1.5 per cent and France's CAC 40 gained 1.9 per cent.

The U.S. dollar's decline, which worsened earnings prospects for Japanese companies, added to the battering Tokyo's benchmark has been taking in recent sessions, sending the Nikkei 225 index crashing 874.81 points, or 5.4 per cent, to close at 15,273.68, its lowest close in a year.

Hong Kong's blue chip Hang Seng Index was down 1.4 per cent by the close, and the Korea Composite Stock Price Index lost 1.33 per cent after dropping 6.9 per cent the previous session.

Some Asian markets bucked the trend with early bargain hunting, but quickly began falling across the board, continuing a worldwide sell-off that has hit recently over the U.S. subprime mortgage crisis.

"The fear factor has overtaken people," said Song Sen Wun, regional economist at CIMB-GK Research Pte. Ltd., adding that people could realize that the fears are overblown as quickly as Monday.

"Whether this is a case of blind panic remains to be seen," he told the Associated Press.

Taiwan's main stock benchmark fell 1.4 per cent to a three-month low at 8,090.29.

New Zealand's NZX-50 index shed 1.6 per cent in a rush of selling in the last hour of trading. Shares were also down in Australia, India, Malaysia, Singapore and China.

Earlier Friday, Japan's central bank injected $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.

Billons injected into markets

Central banks in the United States, Europe, Australia and Japan have injected tens of billions of dollars into money markets since Aug. 9, when stocks tumbled because of the worries over U.S. subprime mortgage problems. So far, the extra money, meant to ease concerns about a credit crunch, has been unable to halt the global sell-off.

The Japanese yen has gained sharply this week as investors buy the currency to pay back low-interest yen loans they had used to invest in emerging markets.

The U.S. dollar slid to 111.80 yen by late afternoon, down from 113.11 yen late Thursday in New York. That's the dollar's lowest level since June 2006, and breaks an overnight low of 112.01.