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Uncertainty prompts Fed to cut discount rate 
'Tighter credit has potential to restrain economic growth'

The US Federal Reserve said Friday it had cut its discount window rate by 50 basis points to 5.75 percent citing "increased uncertainty" in the financial markets.

The Fed moved to lower the overnight interest rate it charges members banks for loans in a bid to help soothe the US banking system which has been stressed in the past week by a credit crunch linked to the distressed housing market.

"Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward," the Fed cautioned in a statement.


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Stock market opens with surge 
Combination of added liquidity, rate cut triggers activity

Stock prices are soaring in early trading today after the Federal Reserve approved a half percentage point cut in its discount rate on loans to banks. The Dow Jones industrial average is up 303.37 at 13,149.15 in the opening minutes.

The Nasdaq Composite is up 68.13 to 2,519.20 and the Standard & Poor's 500 index has gained 32.83 to 1,444.10.

The Fed's move was a salve on a market that has suffered sharp declines over the past week amid ongoing turmoil in the credit markets. The Fed has poured billions in additional liquidity into the banking system in recent days, but Friday's rate cut marked the central bank's most dramatic move yet to alleviate fears about tightening credit and calm global financial markets.

The Fed cut the discount rate to 5.75 percent, down from 6.25 percent, declaring that "downside risks" to the economy have increased appreciably. The central bank did not change its target for the more important federal funds rate, which has remained at 5.25 percent for more than a year. That is the rate on overnight loans between banks.

Major European indexes had a substantial recovery after the Fed announcement. Britain's FTSE 100 jumped 3.51 percent, Germany's DAX index rose 2.62 percent. France's CAC-40 was up 3.18 percent.

In Asia, Japan's Nikkei stock average plummeted 5.42 percent as the yen continued its climb against the dollar, suggesting some investors may be pulling out of a trading strategy referred to as the yen carry trade—using the Japanese currency to acquire higher-yielding assets elsewhere. The index finished down 9 percent for the week.

In corporate news, Dow component Hewlett-Packard Co. late Thursday reported third-quarter profit jumped 29 percent on robust demand for personal computers and printer ink, handily beating Wall Street expectations.

Also late Thursday, tony department store chain Nordstrom Inc. reported a slim second-quarter profit as strong sales of designer clothing and menswear were offset by higher expenses related to way its accounts for its Visa credit card business. Nordstrom also said it has noticed more people are falling behind on credit card payments compared with a year ago.

Oil prices strengthened in premarket trading on Friday, rising $1.18 cents to $72.18 a barrel. Traders have been tracking the path of Hurricane Dean, swirling over the Caribbean and threatening to head west into the Gulf of Mexico—where many of the nation's oil installations are located.

Gold prices jumped $11 to $669 an ounce in premarket Nymex trading, while the dollar traded mixed against major world currencies.

Meanwhile, bond prices fell as the yield on the 10-year Treasury note rose to 4.70 percent from 4.66 percent late Thursday.

The stock market might see added volatility on Friday due to the pending expiration of August options contracts. A stock option gives the buyer the right, but not the obligation, to buy or sell a stock at an agreed-upon price within a certain period.