Rate-cut expectations and stimulus package bolster markets

29-01-2008

Rate-cut expectations and stimulus package bolster markets
Asian and European markets have rebounded today on rate-cut expectations and US stimulus plans aimed to revive its housing market.

Worries about a US slowdown, stemming from the subprime mortgage catastrophe and resulting credit crisis, sent share prices plummeting early last week.

Markets in Asia ended the day higher in expectation of the rate cuts, to be decided on tomorrow at a Federal Reserve meeting.

The Nikkei 225 in Tokyo added 390.95 points, rallying to a close up nearly three per cent after the index dropped almost four per cent a day earlier.

The Hang Seng index in Hong Kong has added 319.35 points, or 1.3 per cent, in afternoon trading.

Markets in Amsterdam and Brussels both finished slightly higher yesterday, while the FTSE 100 has opened up more than half a percentage point in early trading.

The US economic stimulus plan, to the tune of $150 billion (£75 billion), is meant to stabilise the flailing US housing market and raise consumer confidence.

According to the US Department of Commerce, new-home sales data for December revealed that purchases reached a 12-year low during the month, convincing policy-makers that action was required.

By combining a cash infusion with cheaper mortgage rates, the move is supposed to resuscitate the market. But there are worries that the rate cut is not helping the people in most need.

"What the economic stimulus package does, and the accompanying housing provisions do, is really lower the cost of credit to credit-worthy borrowers," said Nicolas Retsinas, director of the Joint Centre for Housing Studies at Harvard University, and a Freddie Mac board member in a CNBC report.

"Today's problem is access to credit for credit-impaired borrowers and people falling behind on their mortgage payments. This does not release the chokehold to credit impaired borrowers," he said.

He added that the latest move "should put the brakes on a further deterioration of the housing market".

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