4:30PM New York, 10:30PM Frankfurt, 2:00 AM Mumbai

Market averages in New York opened up and closed higher. The Fed action to lower discount rate helped averages in New York, Europe, and South America. Hong Kong economy in the second quarter grew at 6.9%.

Dow Jones Industrial Average jumped 1.82% or 233.30 to 13,079.08, Nasdaq gained 2.20% or 53.96 to 2,505.03, and S & P 500 soared 2.46% or 34.67 to 1,445.94.

FTSE 100 Index in the U.K. closed up 205.30 or 3.5% to 6,064.20, in Tokyo Nikkei 225 closed at 15,273.68, down 5.42% or 874.81, and in Brazil, iBovespa Index near the market close traded up 1.2% or 543.41 to 48,558.76.

Yields edged lower on 10-year U.S. bonds and closed at 4.67% and 30-year bond rose to close at 4.98%.

Crude oil increased $0.98 to close at $71.98 per barrel, natural gas closed up 14 cent to $7.01 per mBtu, and gasoline futures increased 6.05 cents to close at 203.88 cents per gallon.

Gold increased $8.80 in New York trading to $666.80 per ounce, silver gained $0.31 to close at $11.80 per ounce, and copper futures declined $579.00 to close at $6,800.00 per metric ton.

In New York trading stocks rallied at the opening and maintained the positive bias through the session. The Fed’s decision to cut the discount rate, the rate it charges to commercial borrowing, by 50 basis points to 5.75% prompted the rally. The statement accompanying the rate cut indicated that the Fed is worried that the financial markets turmoil may affect economic growth rate. This extraordinary rate cut between the scheduled meetings is the first such action by the Fed since 2001. The Fed fund rates were left unchanged at 5.25%. The Fed also widened its discount lending window from overnight lending to thirty day term lending, increasing the availability of funds. The Fed acted in the belief that restrictive lending in certain credit market segments may increase unemployment and slow economy in the longer run, neither outcome this Fed prefers.

The Fed action, though judged prudent, is likely to have little effect in the longer term. The root causes of the problem are not likely to be eliminated with this rate cut. The need for subprime lending and lack of confidence in housing market, both elements of the current problem are not likely to go away with the lowering of rate. The discount rate, though lowered, is higher than the Fed fund rate, has not been used by the Fed as a policy tool for more than ten years. Market is awash with liquidity in the overnight lending but not so in the term lending. The commercial paper market, so called asset backed market, is struggling with liquidity and the prior Fed actions in the last ten days have not increased liquidity. The Fed action today was more directed at this market segment with the goal to lower rate and make funds available where they are needed the most. Will it increase the liquidity, only the coming days will tell, but the stock markets around the world have jumped to the conclusion that somehow commercial paper and thereby subprime lending will recover.

The Fed action sent a signal to buyers of these debts that the U.S. government is willing to work with lender and buyer and facilitate the credit market with longer investment horizon. The yield on commercial paper is still above 5.75% in the market, almost to 6% for high quality paper. Investors view today’s Fed action more as a vote of confidence than as a chance to borrow more funds. The Fed action was designed to tell the world that the government is willing to accept mortgage bonds and pool of securities supported by prime and subprime loans and is willing to lend money not just for overnight term but for 30 days.

Countrywide took the advantage of this opportunity and borrowed the entire credit line of $11.5 billion to fund its operations.

Of the 30 stocks in Dow Jones Industrial Average 25 closed higher and 5 declined. Of the 30 stocks 21 increased more than 1% and 8 stocks gained more than 3%. ExxonMobil led the index stocks with a gain of 4.3% followed by 3% or more rise in Alcoa, United Tech, and Boeing. DuPont led the decliners with a loss of 1.4% followed by McDonalds, General Motors, Caterpillar, and Wal-Mart.

Of the stocks in S&P 500, 335 stocks closed lower and 465 gained, none were unchanged.

Countrywide led the stocks in the index, as it has led the entire week, with a gain of 13% followed by 10% or more in Ambac, MBIA, Precision Capstone, and Goodyear. Nucor, Kohls, and Washington Mutual increased 8%. CB Richard Ellis led the decliners in the index with a loss of 2.75% followed by losses of more than 1.7% in Darden Restaurant, Viacom, New York Times, Boston Scientific, and Lennar Corp.

Asian markets continued to decline on deep-seated investor concerns on the U.S. mortgage market turmoil. Stocks in Australia firmed in morning trade before closing weak. Japan plunged 5.4% followed by Singapore down 3.4%. Hong Kong retreated 3.3%, Kuala Lumpur fell 2.5% and Mumbai lost 1.51%. Australia and China fell 0.7%.

In Latin Markets trading Argentina led the region with a sharp gain of 5.2% followed by Mexico with a rise of 2.6%, Chile with an increase of 2.4%, and Brazil edging higher 1.2%.

2:00PM New York, 7:00PM London – U.K. shares recoup earlier losses after U.S. Federal Reserve slashed rates. Eurozone headline inflation dips to 1.8%. WPP Group reported higher net income. Tullow Oil loses on Congo oil contract.

European markets jumped after the Federal Reserve Bank in Washington cut the discount rate by 50 basis points to 5.75%. Bank shares led the rally, lifting the stocks after losing ground this week. U.K. led the region with a gain of 3.5% followed by 1.9% rise in France. Germany rose 1.49% adding to yesterday’s 0.28%. Sweden was the only loser with a loss of 3.2%. Of the 102 shares in the FTSE 100 index, 100 shares rose while 2 fell and 15 shares jumped above 5%, 78 stocks were up between 1% and 4.9%, and 7 rose below 1%.

In London trading FTSE 100 climbed 3.5% or 205.3 to 6,064.20 spurred by a rise in financials. Stocks traded sideways in the morning. The pound also ended a string of losses firming to 1.99 against one dollar in early afternoon trade on the U.S. rates cut news. At close the pound stood at 1.98 per dollar after dipping to as low as 2.06 to a dollar, seven days ago.

Eurostat reported that the Euro area July annual inflation stood at 1.8%, down from 1.9% in June. A year earlier the rate was 2.4%. Education, alcohol, tobacco, hotels and restaurants reported the highest annual increases in July. France at 1.2% reported one of the lowest annual increases. The European Union yearly inflation fell to 2.0% in July from 2.1% in June compared to the rate of 2.4% a year ago.