* Federal Reserve cuts interest rates by 50 basis points
* Gold soars 3% after Fed's rate cut
* Dollar sinks, oil pares initial gains
By Herbert Lash and Matt Scuffham
NEW YORK, March 3 (Reuters) - Global equity markets slid on
Tuesday and the yield on 10-year U.S. Treasuries fell below 1%
for the first time after the Federal Reserve cut interest rates
in an emergency move to shield the U.S. economy from the impact
of the fast-spreading coronavirus.
Gold prices surged and the dollar sank as markets reacted to
the Fed's surprise cut of the federal funds rate by a half
percentage point, to a target range of 1.00% to 1.25%.
Yields on U.S. government debt fell across the board as
investors grabbed Treasuries and other safe-have assets, such as
gold, amid the uncertainty sparked by the rate cut.
Fed Chair Jerome Powell said in a statement that the
coronavirus would weigh on the U.S. economy for some time and he
believed the central bank's action would provide "a meaningful
boost to the economy."
The slide in stocks and rise in safe-havens suggested
markets found the Fed's action inadequate to an epidemic that
has killed more than 3,000 people worldwide and threatens to
significantly slow global growth. "The Fed's pre-emptive strike against the coronavirus has
backfired," said Michael Arone, chief investment strategist at
State Street Global Advisors in Boston. "The reaction has
signaled to the markets that the coronavirus is on par with
things like the Great Depression, the technology-media-telecom
bubble bursting or the global financial crisis."
Demand is falling and supply chains have been disrupted,
symptoms that lower interest rates do not cure, Arone said.
The unanimous decision by policymakers to cut rates before
their next scheduled policy meeting on March 17-18 reflects the
urgency with which the Fed felt it needed to act to prevent a
potential global recession.
Stocks on Wall Street initially spiked more than 2% on the
Fed's surprise statement. But the Dow Jones industrial average
.DJI , Nasdaq composite index .IXIC and S&P 500 .SPX fell
sharply in afternoon trading.
President Donald Trump said his administration was working
with Congress to pass an emergency spending measure to ramp up
the U.S. response to the coronavirus, adding that he expected
lawmakers to authorize about $8.5 billion.
The Fed's announcement largely validated expectations from
investors for aggressive policy action, said Candice Bangsund, a
global asset allocation strategist at Fiera Capital in Montreal.
"It's become increasingly clear that policymakers have made
stemming the damage from the outbreak a priority, which should
help to place a floor under risky assets in the near-term,"
Bangsund said.
Shares in Europe rose more than 2%, while MSCI's all-country
world index rose almost 1%.
The Group of Seven finance officials said in Tokyo they
would use all appropriate policy tools to achieve strong,
sustainable global growth and safeguard against downside risks
posed by the coronavirus. The Fed's rate cut and the G7 statement came after global
stocks last week suffered their worst rout in a decade on fears
that disruptions from the epidemic to supply chains, factory
output and global travel could seriously slow the world economy.
"The G7 is essentially trying to reassure markets but it
doesn't have the ability to really impact interest rates
directly," said Randy Frederick, vice president of trading and
derivatives for Charles Schwab in Austin, Texas.
MSCI's gauge of stocks across the globe .MIWD00000PUS shed
1.10% and emerging market stocks rose 0.92%.
The pan-European STOXX 600 index .STOXX rose 1.37%
The Dow Jones Industrial Average .DJI fell 745.82 points,
or 2.79%, to 25,957.5, the S&P 500 .SPX lost 81.08 points, or
2.62%, to 3,009.15, and the Nasdaq Composite .IXIC dropped
260.59 points, or 2.91%, to 8,691.58.
Gold surged. U.S. gold futures GCv1 settled 3.1% higher at
$1,644.40 an ounce.
The dollar fell across the board.
The dollar index =USD fell 0.415%, with the euro EUR= up
0.46% to $1.1183. The Japanese yen JPY= strengthened 1.01%
versus the greenback at 107.25 per dollar.
Oil prices closed mixed.
Brent crude LCOc1 fell 4 cents a barrel to settle at
$51.86, off a session high of $53.90 hit immediately after the
rate cut. U.S. West Texas Intermediate (WTI) CLc1 added 43
cents a barrel to settle at $47.18, after trading as high as
$48.66 a barrel.
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