WASHINGTON, Aug 31: US stocks rose sharply on Friday as President Bush promised to bring “help and hope” to the troubled American real estate market.
In a related development, Federal Reserve Chairman Ben Bernanke pledged to keep in mind troubles of the financial markets when determining monetary policy.
Data released on Thursday showed the US economy grew at a solid four per cent in the April-June quarter, but analysts expect a sharp slowdown in view of the credit tightening.
The US media noted that investors bypassed a slew of economic data to focus on government’s promises, noting particularly that Mr Bernanke did not rule out future cuts in interest rates. “We’ll help guard against future problems in the housing sector,” said President Bush.
“Owning a home has always been at the centre of the American Dream. Together with the US Congress, I will continue working to help make that dream a reality for more of our citizens.”
Noting that earlier this month the US Federal Reserve provided cash reserves to rescue strained money markets and reduced the direct lending rate to banks by half a percentage point to 5.75 per cent, Mr. Bernanke said that the central bank was prepared to provide liquidity to keep the markets rolling.
But he also warned that “it is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions.”
The Dow Jones Industrial Average rose 182 points, or 1.3 per cent, at 13,421, with all 30 component stocks posting gains, led by the likes of United Technologies Corp. and Home Depot Inc. both up more than two per cent. The S&P 500 22 points at 1,479 and the Nasdaq Composite gained 31 points at 2,596.
Trading volume on the New York Stock Exchange topped 571 million ahead of the long holiday weekend, with advancing stocks ahead of decliners three to one.
On the Nasdaq, volume came to 722 million shares, with advancing stocks ahead of declining issues eight to five.
In a speech at the central bank’s yearly conference, Mr Bernanke declared the Fed was ready to act as needed to prevent harm to the US economy.
Investors scrutinised the Fed chief’s comments in an attempt at measuring whether Fed policymakers are leaning toward a cut in the federal funds rate, which still stands at 5.25 per cent.
In Washington, President Bush unveiled several steps aimed at helping sub-prime mortgage borrowers keep their homes.
His plan proposes to expand the role of the federal government to stem a wave of mortgage defaults and allows refinancing into government-insured mortgages.
Mr Bush, however, rejected a wholesale bailout of borrowers and lenders alike, saying a bailout of lenders would only encourage similar situations in the future.
