European markets edge up after US rate cut 23/01/2008 00:00

European bourses edged forward in opening trade Wednesday in the wake of the US Federal Reserve's hefty rate cut and after a recovery in shares in Wall Street and Asia.

23 January 2008

Frankfurt, Germany - European bourses edged forward in opening trade Wednesday in the wake of the US Federal Reserve's hefty rate cut and after a recovery in shares in Wall Street and Asia.

The benchmark European blue chip Stoxx 50 gained 1.5% to 3249 points in early trading with national European bourses also gaining after two days of heavy selling on the back of fears that the giant US economy was on the brink of recession.

But as trading continued Tuesday the Stoxx 50 trimmed its rise to just 0.4%.

While the New York Stock Exchange pared back significant losses in opening trade Tuesday to close down about 1%, leading markets across Asia pulled back from the big falls they have run up since the start of the week.
 
Indeed, Hong Kong's Heng Seng index reversed a 9% drop on Tuesday to close 9.89% up on Wednesday. In the meantime, the Shanghai stock market gained 3.1% Wednesday, Tokyo rose 2.04% and Sydney jumped 4.28%.

The turnaround in the markets followed the Federal Reserve historic 75-basis points cut in its benchmark interest rate.

The reduction sparked market speculation that the US monetary authorities could deliver another a big cut in borrowing costs of up to 50 basis points at their meeting set down for next week.

Despite signs of a more positive mood prevailing on the world share markets following the fed's move, analysts warned that the mood among investors remained very nervous.

This combined, with the fed's rate decision is likely to add to the pressure on the European Central Bank to follow up with a cut in the cost of money in the 15-member eurozone.

However, the ECB has consistently pointed to the threat posed by renewed inflation pressures and has warned that it is ready to raise rates to stamp the risk of a pickup in consumer prices.