By STEVEN RUSSOLILLO And BRENDAN CONWAY
NEW YORK Three substantial economic developments announced in quick succession, including efforts to make dollar funding cheaper for European banks, drove buyers into global equity markets and pushed U.S. stocks sharply higher shortly after the opening bell.
Central banks around the globe announced a coordinated plan to support the global financial system that has been roiled for months by Europe's debt crisis. The announcement came after China indicated it would loosen monetary policy by lowering the reserve requirement ratio for banks. And a report on the labor market showed private-business hiring rose by 206,000 in November, the largest monthly gain this year.
The Dow Jones Industrial Average surged 322 points, or 2.8%, to 11877. All 30 Dow components rose, led higher by Caterpillar (CAT)'s
The major announcement was the coordinated plan by global central banks. The Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 0.50 percentage point.
That takes the new rate down to the U.S. dollar overnight index swap, or OIS, rate plus 0.50 percentage point, the Fed said, with the goal of easing strains in global financial markets.
"One of the risks that we saw derailing improving U.S. markets was the funding markets," said Michael Shaoul, chief executive at brokerage firm Oscar Gruss. "Today's move is clearly attempting to address that."
Separately, Standard & Poor's Ratings Services late Tuesday downgraded more than a dozen large banks, including the six biggest U.S. financial institutions. The credit downgrade will make it more expensive for those banks, including J.P. Morgan Chase (JPM)
While the coordinated central bank effort doesn't address the fundamental problems associated with European government debt, it underscores a "sense of urgency" to address the broad issues ailing the global financial system, according to Seth Setrakian, co-head of trading at First New York Securities.
"The Fed and other central banks saw a very scary situation developing. There was a sense of urgency to act, especially after S&P took action last night," Mr. Setrakian said. "They're trying to take any action they can before having to rely on the [European Central Bank] or [International Monetary Fund]. They're hoping this stems the panic."
European markets jumped. The Stoxx Europe 600 rose 2.9%, while the German DAX surged 4.3% and the France CAC 40 increased 3.6%.
Gold futures gained 1.6% to $1,745 an ounce, while crude oil futures jumped 1.4% to $101.15. The U.S. dollar fell sharply against the euro and the yen.
The People's Bank of China indicated it was loosening monetary policy after it said the reserve requirement ratio for banks will be lowered by 0.50 percentage point as of Dec. 5 in an effort to boost liquidity. China's central bank had previously raised the reserve requirement ratio six times this year.
Additionally, private-sector jobs in the U.S. rose by 206,000, according to Automatic Data Processing and consultancy Macroeconomic Advisers, which came in well ahead of the 130,000 gain economists were expecting.
The ADP survey counts only private-sector jobs, while the Bureau of Labor Statistics' nonfarm payroll data, to be released Friday, include government workers. The extra-large jump in the ADP measure may cause some economists to raise their forecast for Friday's payrolls figures.
Also on the economic calendar, the productivity of U.S. workers in the third quarter was less than initially reported, reinforcing the view that economic growth in that period was not as robust as first thought. A reading on Chicago-area manufacturing activity in November is scheduled for 9:45 a.m., Eastern Time, and pending home sales data for October is due out at 10 a.m., EST.
The Fed's "beige book," which is a report of economic activity around the country, will be released at 2 p.m.
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