USA: Wall Street climbs on AIG rescue hopes

Record ID: 751545

  • Title: USA: Wall Street climbs on AIG rescue hopes
  • Date: 17th September 2008
  • Summary: WASHINGTON D.C. UNITED STATES (SEPTEMBER 16, 2008) (REUTERS) FEDERAL RESERVE CHAIRMAN BEN BERNANKE ARRIVES AT THE FEDERAL RESERVE EXTERIORS OF THE FEDERAL RESERVE BUILDING
  • Embargoed: 2nd October 2008 13:00
  • Keywords:
  • Location: Usa
  • Country: USA
  • Topics: Finance
  • Reuters ID: LVA505KTVDAH0ODP9ZH8I44NHSQN
  • Story Text: Wall Street climbs on AIG rescue hopes, and the Fed holds steady, keeping interest rates unchanged.
    U.S. stocks clawed back from their biggest drop in seven years on Tuesday (September 16) as optimism grew that U.S. authorities may finance a rescue of insurer American International Group (AIG).
    A report late in the session that the Federal Reserve was considering a loan to AIG pulled the market out of a funk. Stocks had been lower after the U.S. central bank disappointed investors by opting not to cut interest rates as many had expected.
    The Federal Reserve held U.S. interest rate steady, opting to soothe rattled financial markets with central bank lending and saying it was worried both about economic weakness and price pressures. The U.S. central bank's unanimous decision leaves the interbank overnight federal funds rate at 2 percent, where it has been since April.
    Mark Williams, a finance professor at the Boston University School of Management, thinks the Fed made the right call. He said, "I think the Fed was smart. It's smart to wait, just to see where the Fed is. I think they've opened up the chance that they would reduce rates if they need to on a short notice. I think that's obviously a smart move on their part."
    The U.S. Federal Reserve has hired investment bank Morgan Stanley to review options for AIG -- which has lost some 92 percent of its value so far this year -- a person familiar with the situation said Monday. AIG's precipitous stock decline has led ratings agencies to threaten downgrades that could force it to post more collateral and nullify insurance contracts, possibly setting in motion a chain reaction that could threaten its survival.
    At one time, AIG was the world's largest insurer based on market value.
    Williams says, "It's interesting, I think the Fed was smart at this point. AIG is still at the precipice, so the question really is whether AIG is going to be around in a day, two days or a week. So I think the Fed, they want to save some power. If they had actually reduced rates without knowing the certainty of AIG, then I think it would have been a mistake."
    On Tuesday (September 16), The Dow Jones industrial average .DJI rose
    51 points, or 1.30 percent, to 11,059.02, while the Standard & Poor's 500 Index .SPX gained 20.90 points, or 1.75 percent, to 1,213.60. The Nasdaq Composite Index was up 27.99 points, or 1.28 percent, at 2,207.90.
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