The US Federal Reserve slashed key interest rates in a shock move on Wednesday and said it would do more if needed to keep the US economy from stalling, electrifying financial markets around the world.
The move, which came four weeks ahead of the year's first scheduled meeting of the rate-setting Federal Open Market Committee (FOMC), takes the crucial fed funds overnight bank lending rate to 6 percent, down from 6.5 percent.
The cut was decided in a hastily arranged conference call among FOMC members.
Financial markets surged within seconds of the news, welcoming the much-needed dose of economic Viagra.
The Dow Jones Industrial Average rose nearly 3 percent, while the technology-heavy NASDAQ skyrocketed more than 14 percent, its biggest daily gain ever.
In Taipei, the TAIEX soared 241.34 points, or 4.9 percent, to close at 5,136.13. Taiwanese investors look to the NASDAQ for buying or selling tips because many Taiwanese companies maintain close business ties to technology heavyweights in the US, Taiwan's largest export market.
"The main factor going forward for the local market will be US stocks," said Michael Yu, deputy manager at Taiwan International Securities in Taipei. "Taiwan stocks are unlikely to fall much after this."
The US Fed's rate cut was the first between regular FOMC meetings since the autumn of 1998, when a global economic crisis threatened to seize up world financial markets.
"These actions were taken in light of further weakening of sales and production, and in the context of lower consumer confidence, tight conditions in some segments of financial markets, and high energy prices sapping household and business purchasing power," the US central bank said in a statement.
But the Fed said that even with Wednesday's move, it still saw the risks in the US economy as weighted toward economic weakness -- clearly signaling that more rate cuts may come soon, possibly at the FOMC meeting scheduled for Jan. 30 and Jan. 31.
"They'll do more if they need to to ensure that the economy doesn't go into a tailspin," said Dana Johnson, senior managing director and head of research at Banc One Capital Markets Inc. "They're absolutely committed to doing everything they know how to do to prevent a hard landing."
The IMF said the US rate cut was good news for the rest of the world. "This timely adjustment of monetary policy is appropriate to help ensure a soft landing in the United States and to strengthen prospects for sustained growth in the global economy," IMF managing director Horst Koehler said.
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