Turmoil abates in Spanish bourse as Fed cuts rates

23 January 2008

MADRID – The Spanish bourse steadied on Tuesday after one of its worst days on record the previous session as the US Federal Reserve came to the rescue of the financial markets with a large emergency interest rate cut aimed at warding off a recession in the world’s largest economy.

The Spanish blue-chip Ibex 35 closed up 1.69 percent at 12,839.70 after it dropped 7.54 percent on Monday, the biggest daily fall the benchmark index has suffered since it was established at the start of 1992.

Other European bourses also stabilised after the Federal Reserve cut its overnight lending rate by 75 basis points to 3.50 percent, helping to stave off expected steep falls on Wall Street, which was closed Monday for a public holiday.

That was the Fed’s first emergency cut since 17 September 2001 and the biggest single reduction since 1982.

The move came after President George W. Bush announced a EUR 140 billion fiscal-stimulus package to boost the sagging US economy.

While bourses yesterday enjoyed a lull in the storm, dealers believe the markets are in for a rollercoaster ride for some time to come until the full extent of the fallout from the credit crunch, the US subprime mortgage crisis and the actual state of health of the US economy become clearer.

European leaders yesterday called for calm and sought to distance their economies from the situation on the other side of the Atlantic.

"We don’t need to imitate all the decisions other countries can adopt," the European commissioner for economic affairs, Spaniard Joaquín Almunia said. "The US economy has serious problems with fundamentals, we haven’t," he added.

Spanish Prime Minister José Luis Rodríguez Zapatero said there were "objective reasons" for investors to hold their nerve in the face of the turbulence in the markets. Spain, he said, was a "safe ship" and was "better prepared than ever" to weather the storm.

Economy Minister Pedro Solbes ruled out a recession hitting Europe and "much less so in Spain."

Solbes also dismissed the need for massive tax breaks along the lines proposed by Bush, arguing that the Spanish national accounts were in a far healthier state, with the country running a budget surplus while reducing its debt over the past four years.

Subject: Spanish news