US interest rates cut
The US central bank, the Federal Reserve, has cut interest rates by half a point to 4.5%.
The unexpected cut on Wednesday is the fourth time this year that US rates have been lowered, as the central bank attempts to counter the threat of recession.
The news of the rate cut sent share prices soaring on Wall Street and in Europe, with the blue chip Dow Jones Industrial Average gaining more than 400 points or 4% within minutes of the news breaking.
The tech-heavy Nasdaq stock market surged more than 8% to more than 2,100 points within 15 minutes of the decision being announced.
Surprising move
In Europe the main stock markets in London, Frankfurt and Paris all gained 2% or more. The FTSE 100 index of leading UK shares closed 2% higher at 5,890.
The Federal Reserve normally announces any change in its interest rate policy after the six-weekly meeting of its Federal Open Market Committee.
The decision was made following an early morning call between Fed chairman Alan Greenspan and FOMC members.
The move comes well before the Fed's next scheduled meeting, on 15 May, and took financial markets completely by surprise.
The Fed last changed rates between meetings on 3 January.
The decision comes during a week in which a succession of America's biggest firms have unveiled sharp drops in profits.
The world's largest chip market, Intel, started the ball rolling, reporting a 64% decline in first quarter profits.
Also in the technology sector, PC and printer maker Hewlett Packard warned that its profits for the three months up to the end of April would not reach expectations, and cut 3,000 jobs.
Investors reacted postively to both announcements, which were slightly better than lowered expectations, boosting Intel and Hewlett Packard shares in early trading on Wednesday.
General Motors and Canada's TRW, which makes products for the automotive, aerospace and information systems markets, also reported sharp drops in profits for the first three months of 2001.
Analysts' reaction
The surprise rate cut underlines growing concern about the speed with which the US economy is losing steam.
David Jones, chief economist at stockbrokers Aubrey G Lonston, said: "I've been betting they'd do an intermeeting cut, though I did not expect they would cut as much as this. This is impressive."
Will Braman, chief investment officer at John Hancock, said: "A little bit surprising, but not altogether surprising given the magnitude of some of the commentary we've had out of our very, very large technology companies with regards to the sequential declines they are seeing in their rates of business orders."
Some analysts believe Mr Greenspan will be forced to cut another half point from rates at the Fed's May meeting.
Craig Ghodash, portfolio manager, at JW Seligman, said: "The economy is very weak, and (Greenspan) probably needs to cut another 50 (basis points) in May.
"I think the summer should be the bottom.
These rates should get the consumer and the
economy going again."
-- Anonymous, April 18, 2001