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US investors circle wagons, hope Fed rides to rescue

NEW YORK: US investors endured a holiday-shortened week that left stocks mainly static despite weak economic readings that weighed on Wall Street, as hopes of fresh interest rate cuts helped shore up sentiment.

Market participants said the lackluster economic news in recent days was not surprising, but that it has heightened fears of a recession.

In a week shortened by Monday’s public holiday, the leading blue-chip Dow Jones Industrial Average ended Friday almost unchanged at 12,381.02 points, up 0.27 percent from the prior Friday. The tech-rich Nasdaq composite fell 0.79 percent for the week to 2,303.35 and the broad-market Standard amp; Poor’s 500 index edged up 0.23 percent to 1,353.11.

US stock markets have fallen heavily this year as a two-year-long housing slump shows no sign of abating any time soon and as major financial firms continue to divulge hefty losses tied to ailing mortgage investments and other exotic securities.

Investors said they are eagerly awaiting to hear Federal Reserve chairman Ben Bernanke’s latest insights when he appears before two congressional panels next Wednesday and Thursday.

Bernanke is due to brief lawmakers on the state of the world’s largest economy. He is also likely to face a tough grilling over the Fed’s monetary policy.

The central bank has slashed borrowing costs aggressively since September in a bid to shore up economic momentum which slowed dramatically during the fourth quarter of 2007 to an annualized 0.6 percent.

The Federal Open Market Committee (FOMC) has slashed the central bank’s key short-term interest rate to 3.00 percent from 5.25 percent since September in an attempt to ease tight credit and stimulate gross domestic product (GDP) growth.

A growing number of analysts believe the Fed will cut borrowing costs by a half point at a March 18 meeting, and more and more economists are signing up to the belief that the economy is or has fallen into a recession.

“The debate is no longer about whether the economy is in recession, in our view, it is about how hard the landing will be,” Merrill Lynch economist David Rosenberg said in a briefing note.

Economists at Goldman Sachs also believe the economy is in a recession.

“Our own view remains that the economy is likely to be even weaker than the FOMC expects, especially in the first half of the year, where we expect an outright contraction in real GDP. This should prompt at least another 50 basis points of Fed easing in coming months,” the Goldman economists said in a briefing note.

Wall Street also will receive a flurry of economic news in the coming week, including reports on home sales, inflation and consumer spending. Most analysts expect separate snapshots on existing and new-home sales to show the housing market remains in a downward spiral.

January existing home sales are expected to have declined to an annualized 4.80 million properties after sales fell over two percent to 4.89 million homes in December.

Property prices have also fallen in the past year, while home foreclosures continue to rise, although some observers expect lower interest rates and a giant 168-billion-dollar economic stimulus plan to help restore confidence in the markets and the wider economy.

“The weakness in housing is spreading into other sectors, while the evidence suggests consumers are being squeezed by falling home prices and high gasoline costs,” said Beth Ann Bovino, an economist at Standard and Poor’s.

Such sentiment suggests Wall Street volatility will continue for some time before bruised US investors recover their appetite for stocks.

Bonds weakened over the week. The yield on the 10-year Treasury bond rose to 3.790 percent from 3.780 percent a week earlier, while that on the 30-year bond increased to 4.582 percent from 4.595 percent. Bond yields and prices move in opposite directions. afp

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