Sensex swings to Fed tunes

Mumbai, March 19: The euphoria of the interest rate cut of 75 basis points by the US Fed on Tuesday saw the stock markets open strong and the Sensex gained over 600 points. But the euphoria soon faded as investors booked profits and squared up ahead of the long weekend commencing on Thursday. Punters were also cautious to wind up some of their positions as next Thursday is the last day for settlement in the derivatives segment.
The markets shot up over 400 points on opening bell on cues from the overnight bounce back of the Dow and Nasdaq on the Fed’s rate cut and the surge in Asian stocks. The Sensex closed 161.4 points up at 14,994.8 while the Nifty gained 40.9 points at 4573.9. Only 374 stocks ended in the green and 874 in the red. The midcap and the smallcap indices were also down. The European markets all ended in the red between 0.2 and 1.9 per cent down.
The Dow and Nasdaq opened weak on Wednesday and were down at the time of writing this report. The Fed’s liberal cut in the rate at which bank’s borrow from the Fed does not seem to have inspired confidence. Analysts felt that this would provide a temporary reprieve as several banks are expected to declare their sub-prime losses not only in the US but in Europe.
The Fed’s cut while being widely welcomed has come in for criticism in some quarters for encouraging irresponsible sub-prime schemes by bailing the banks out. One US commentator said in the International Herald Tribune, "The biggest danger is the damage to the Fed’s credibility if it is seen as unwilling to let financial institutions face the consequences of their decisions. Central banks have long been sensitive to moral hazard, the danger that rescuing investors from their mistakes will encourage others to be more reckless in the future."
source: deccan chronicle daily news papaer