Wall Street on edge despite Dow’s surge

Wall Street’s best day in two weeks —- and one of its best ever —- was a joyless rally.

Even a manic, final-hour stampede of buying that sent the Dow Jones industrials soaring almost 900 points did nothing to dispel the feeling that the market could turn on investors in an instant.

But the extraordinary, lurching volatility that has gripped Wall Street since the financial meltdown began in mid-September meant there were no guarantees the rally would hold, not even for a few days.

Investors are expecting a cut in interest rates when the Federal Reserve announces its decision today. But they’re also staring into an economic abyss, bracing for a recession of a depth no one knows for sure.

Any other day like Tuesday, when the Dow and the Standard and Poor’s 500 both rose almost 11 percent, might have ended with boisterous cheers and paper tossed into the air. This day, 4 p.m. came with meager applause.

“I don’t think it will be a sustained move,” said Matt King, chief investment officer at Bell Investment Advisors.

The Dow finished 889 points higher to close at 9,065. On Oct. 13, the Dow rose 936 points, its best ever; no other single-day rally has come close in terms of points to what happened Tuesday.

Analysts ventured a number of explanations for the sudden rally —- including coming interest rate cuts, bargain hunting, a market desperate to find a bottom and the expectation that banks, at the urging of the White House, will quit hoarding money and start making loans.

“There is nothing fundamental that came out today or yesterday that would take it up or down. We’re all groping for something meaningful to talk about,” said Bob Andres, chief investment strategist at Portfolio Management Consultants. “The market is exhausted from going down.”

The S&P 500 had fallen 27 percent in October, and 40 percent for the year, before Tuesday’s jump.

Hoping to thaw the credit freeze that has chilled the economy, the Bush administration Tuesday sent banks an unmistakable message to put aside fears and open up loan windows for cash-starved businesses and consumers who have pulled back on spending.

“What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” White House press secretary Dana Perino said.

While there are limits to Washington’s power to affect banks’ behavior, the White House decided it was time to use its bully pulpit.

“They [regulators] will be watching very closely, and they’re working with the banks,” Perino said.

Washington has pumped money and confidence-building measures into the system over recent weeks to get lending, the lifeblood of the credit-dependent American economy, flowing freely again and to combat the worst financial crisis since the 1930s. So far, though, it has not worked. While the crucial and much-watched short-term lending rate called the London Interbank Offered Rate, or Libor, has come down, it remains at elevated levels.

The Federal Reserve is expected to announce a cut in its fed funds rate today —- and Wall Street is looking for a drop in the key interest rate by half a point to 1 percent.

At the center of the administration’s efforts to thaw credit is the $700 billion financial bailout plan approved by Congress and signed by President Bush earlier this month. Under that law’s authority, the administration is doling out $250 billion this year to banks in return for partial ownership.

The Treasury Department, which is overseeing the massive capital injection program along with the rest of the bailout, will pour $125 billion into nine of the country’s largest banks, which account for 50 percent of all U.S. deposits.

Anthony Ryan, Treasury’s acting undersecretary for domestic finance, said the first payments went out Tuesday. An additional $125 billion will start flowing to other banks within days, he said.

“As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy,” Ryan told the annual meeting of the Securities Industry and Financial Markets Association. “It is in a strengthened institution’s best financial interest to increase lending once it has received government funding.”

 Associated Press 
DOW RALLIES; GAINS NEARLY 900 
The Dow Jones rose 10.88 percent Tuesday, its second-largest point gain ever and fifth-best percentage increase.

Greatest percentage gains 
Oct. 6, 1931......12.86 pts.....14.87% 
Oct. 30, 1929 ....28.40 ........12.34 
Sept. 21, 1932 ....7.67 ........11.36 
Oct. 13, 2008....936.42 ........11.1 
Oct. 28, 2008....889.35 ........10.88 

Dow Jones industrial average, Tuesday 
Open: 8,175.77 
Close: 9,065.12 
Source: Thomson Reuters