NEW YORK (AFP) - US stock markets got a lift from the Federal Reserve's latest interest rate cut as the week's economic news confirmed the US economy is no longer accelerating and has struck a few worrisome potholes.
Despite the rebound, Wall Street is hoping that Congress will approve a giant stimulus package aimed at mitigating an economic slump.
In the week to Friday, the benchmark blue-chip Dow Jones Industrial Average rose 4.39 percent to close at 12,743.19. The Dow is down four percent for the year to date, however.
The tech-laden Nasdaq composite gained 3.74 percent to 2,413.36 while the Standard & Poor's 500 index increased 4.87 percent to 1,395.42.
All three indexes have lost considerable ground in recent months amid a worsening housing slump and a related credit squeeze which have triggered losses at major banks.
"While short-term prospects seem to be unraveling, and there continues to be hand-wringing about the ultimate fate of the bond insurers, markets are detecting a glimmer of light at the end of the tunnel," economists at Global Insight said in a briefing note.
Some investors are fearful that credit woes could sap the financial health of bond insurers, but one of the world's largest bond insurers, MBIA, eased market nerves this week by announcing it had raised fresh capital.
Wall Street also cheered a decision by the Fed to cut its key federal funds interest rate by half a percentage point to 3.00 percent on Wednesday.
The central bank cut rates just a week after it had slashed borrowing costs by an historic three quarters of a percentage point amid mounting economic uncertainty.
Government surveys this past week confirmed the giant US economy is sailing in turbulent waters: Fourth quarter economic growth slowed to a 0.6 percent annualized crawl compared with 4.9 percent in the prior quarter, and the economy lost an unexpected 17,000 jobs in January.
The Fed has unleashed more aggressive rate cuts in recent weeks as recession worries have mounted, although some analysts believe the economy is already in recession.
The economic news flow will be much lighter in the coming week with reports on jobless claims and consumer credit among others, but investors said they were waiting to see if Congress passes a stimulus plan sought by President George W. Bush.
Bush urged Congress to pass a stimulus "quickly" on Friday amid a congressional squabble over the right size of the package and the extent of tax rebates and business incentives.
The plan could be worth as much as 150 billion dollars, but could be pared back to a lesser amount.
Corporate executives and economists warn that the economy is likely to remain in a rough spot in the near term.
"What lies ahead for our economy may be some rough sledding, as mounting evidence suggests that growth has come to a stand still," said Carl Tannenbaum, a private economic consultant.
A host of companies have warned in recent days of belt-tightening times ahead and more job layoffs are likely to be made.
A monthly employment snapshot Friday showed the economy lost an unexpected 17,000 jobs in January, marking the first monthly loss in nonfarm payrolls since August 2003.
Major banks, reeling from multibillion dollar losses on ailing mortgage investments, continue to lay off staff as are other industries including manufacturing and telecommunications.
Although Wall Street's spirits were lifted in recent days, market sentiment is likely to remain cautious in the coming week.
Bond prices dropped over the week as investors regained confidence in stocks.
The yield on the 10-year Treasury bond rose to 3.600 percent from 3.584 percent a week earlier, while that on the 30-year bond climbed to 4.318 percent from 4.282 percent. Bond yields and prices move in opposite directions.
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