World Stock Markets Rise After Central Banks Inject Cash

13 August 2007 -- Stock markets in Europe and Asia posted gains Monday, while U.S. stock markets fell slightly. Investors appeared reassured after central banks added cash to combat tight credit conditions that roiled markets last week.

The U.S. Federal Reserve became the latest central bank to inject further cash, adding $2 billion of temporary reserves to the U.S. banking system. Earlier, the European Central Bank released $65 billion, in addition to some $200 billion last week, while the Bank of Japan added $5 billion.

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The central bank interventions are welcome news to nervous investors, according to Hugh Johnson, who heads the New York-based investment management firm, Johnson Illington Advisors.

"It shows that the central banks are not going to sit idly by and watch conditions deteriorate in the financial markets and the economy," said Johnson. "They are going to get involved, and they got involved in a very major way. So, that is encouraging."

European stock markets soared Monday, with London's Financial Times 100 index jumping three percent. The CAC-40 in Paris climbed just over two percent, while the DAX in Frankfurt gained nearly two percent. Asian markets posted modest gains.

In the United States, banks tightened lending conditions, in part, following a dramatic rise in defaults on risky home mortgages as part of an overall depressed housing market. A prolonged credit crunch would be a severe blow to the nation's financial health and the world economy, constraining consumers and businesses alike that rely on loans to finance purchases and other activities that contribute to economic growth.

Meanwhile, the U.S. Commerce Department reports consumer spending at a healthy level, with retail sales rising 0.3 percent in July, led by sales in clothes, furniture and electronics. Consumer spending accounts for two-thirds of total U.S. economic activity.

Source: VOA News