Market Holds Vigil After Rate Cuts

Central banks from the U.S. to Asia sent a resounding message to the markets on Wednesday morning in the first coordinated effort to stem the global financial crisis: We recognize the problem and will respond swiftly and dramatically to help solve it.

The move by at least eight central banks to slash key interest rate targets or voice enthusiastic support for the effort had an immediate impact, with credit markets freeing up dramatically. Stocks wavered in and out of positive territory as investors attempted to gauge the long-term impact of the latest chapter in a wide-ranging government intervention in recent weeks.

The Federal Reserve, European Central Bank and Bank of England each slashed rates by half a point, to 1.5%, 3.75% and 4.5%, respectively. The central banks of China, Canada, Sweden and Switzerland also reduced rates, while the Bank of Japan -- whose rate doesn't have far to fall at 0.5% -- expressed its support.

By Wednesday afternoon, credit markets once again started to show signs of life, as Treasury yields shot higher, the cost of insuring long-term debt plunged, and Fannie Mae ( FNM) issued new notes at a cheaper cost.

"Three major segments of the credit markets are casting compelling signals Wednesday , suggesting glimmers of light are peering through the darkness, and investors are beginning to run toward them," says Tony Crescenzi, chief bond market strategist for Miller Tabak + Co.

But whether those glimmers can be sustained is far from certain, as stresses on the consumer -- whose spending accounts for two-thirds of the U.S. economy -- are sure to take their toll.

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