TOPICS > Economy

Stocks Surge as Central Banks Move to Ease Credit Crunch

November 30, 2011 at 12:00 AM EDT
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JEFFREY BROWN: Stock markets roared their approval today after the U.S. Federal Reserve led a global move to head off a new financial panic originating in Europe.

The Dow Jones industrial average gained 490 points to close at 12,045, up more than 4 percent. The Nasdaq rose more than 104 points to close at 2,620, also a 4 percent gain. Traders responded instantly to word of the new effort to make bank loans easier to come by.

The coordinated action was announced in the middle of the European trading day and just before U.S. markets opened. And it gave investors a jolt.

STEPHEN GUILFOYLE, Meridian Equity Partners: Well, we had an old-fashioned morning, the kind we used to love to have, an opening old-school, running around like a bunch of chickens without heads and having a good time trying to trade.

JEFFREY BROWN: Six central banks, the U.S. Federal Reserve, the banks of England, Canada, Japan, Switzerland and the European Central Bank, announced they would make it cheaper for commercial banks in Europe to borrow U.S. dollars.

The move was intended to stem a mounting credit crunch in Europe, where bank lending is grinding to a halt as the sovereign debt crisis deepens.

ROBERT HALVER, Baader Bank (through translator): This means that the banks are back in business. They can provide loans. They are now liquid again.

JEFFREY BROWN: Dollars will be loaned or swapped for euros by the Federal Reserve under an existing program that will now be extended into early 2013.

In a statement, the Fed and the other central banks said: “The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”

For months, the focus of the European crisis has been on countries Greece, Italy and others facing huge debt burdens and potential default. Those problems continue. But, today at least, investors worldwide breathed a sigh of relief.