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Financial Focus

THE US Federal Reserve yesterday pledged to keep its benchmark interest rate at a record low at least through mid-2013 to revive a recovery that’s “considerably slower” than anticipated. The US central bank is “prepared to employ” additional tools to bolster an economy hobbled by weak hiring and anaemic household spending, it said in a statement.

BANKS in Europe appear increasingly reluctant to lend to one another, dangerously mirroring scenes last witnessed in the credit crisis of 2008. Cash is not circulating in a regular fashion in the Eurozone as jitters about the debt crisis grow, although analysts are quick to point out that we are not at the extreme levels seen in the 2008 crisis.

DETAILED plans on how banks should wind themselves up or change shape to stay afloat in a crisis were set out by the City regulator yesterday. The Financial Services Authority is making all UK banks draw up two “living wills” by the end of 2012 to cope with future shocks, though it expects the biggest to have such plans in place by the end of next June.

MARKETS:

THE FTSE 100 index rose 1.9% yesterday, snapping a losing streak that has stretched back over the last seven trading sessions. At one point in the morning the index fell below 5,000 for the first time since September 2009.

DESPITE losing over 1% as the Fed released its downbeat statement on the US recovery, the Dow and S&P 500 rose 3.98% and 4.74% respectively as investors returned to equities yesterday.

JAPAN’S NIKKEI share average snapped a three-day losing streak overnight, although blue chip exporters fell as the yen regained steam. The benchmark Nikkei average closed up 1.1%, while the broader Topix gained 0.8%. Investor sentiment was also boosted by data showing China’s export growth accelerating in July, calming fears that weak demand from Europe and the United States would hit the world’s second-biggest economy.

EUROPE’s main stock indexes are expected to rise today, adding to the previous day’s timid rebound that halted a 20% dive. S&P futures fell 0.4% overnight however, suggesting there may be a pause in Wall Street’s sharp rally.

CURRENCIES:

JAPAN’s Finance Minister Yoshihiko Noda said that one-sided moves in the yen could hurt growth as the currency strengthened against the dollar to close at the level where authorities intervened last week. Japanese authorities spent a record 4.5 trillion yen ($59 billion) to weaken the currency last week. ECB President Jean-Claude Trichet said intervention must be made on a multilateral consensus, a signalling disapproval of Japan’s action.

ENERGY:

OIL rebounded from a 10-month low in New York as investors bet fuel demand will increase amid shrinking stockpiles and comments by the US Fed that it is prepared to use a range of methods to bolster the economy.

COMMODITIES:

COPPER led a rebound in commodities from an eight-month low after the Fed pledged to bolster the US economy. Commodities also gained as China, the top buyer of copper and aluminium, may join Asian nations from South Korea to India in delaying interest-rate increases in a bid to help stabilise financial markets.

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