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Markets & Stocks
Bonds rally on rate cut bet
September 14, 2001: 3:55 p.m. ET

Inflation, retail data also give boost to debt; dollar mixed on fear of war
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NEW YORK (CNNfn) - U.S. bonds rallied Friday, in a clear vote for a Federal Reserve interest-rate cut once stock trading resumes after the four-day pause resulting from the worst terrorist attack in the country's history.

Markets in Europe and the Americas tumbled, as international investors showed nervousness about the stability of U.S. markets ahead of the reopen. Oil and gold prices shot up in anticipation of a U.S. military retaliation.

"Clearly, Tuesday's actions raise the risk of investing in the U.S. economy," Brian Wesbury, chief economist at Griffin Kubik Stephens & Thompson, told CNNfn.

New government figures showing inflation in check, and retail sales in line with expectations, also figured in the second session since a two-day halt in government securities trading.

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Workers at the Chicago Mercantile Exchange pause for a moment of silence. Many traders at the exchange tucked small American flags in their jacket pockets as they returned to the trading floor.
The two-year note hit historic lows. At the 2:00 p.m. ET close, one hour earlier than is standard, the note's yield fell to 2.88 percent from 2.98 percent late Thursday.

The five-year note yield dropped to 3.83 percent from 3.94 percent.

The yield on the 10-year note declined to 4.56 percent from 4.64 percent. And the 30-year bond dropped to 5.35 percent from 5.38 percent.

"There is a lot of uncertainty. It's a real searching out process right now," said Bill Cunningham, chief bond strategist, J.P. Morgan. "This crisis may prove to create a buying opportunity."

Interest-rate cut hopes brewing

The Federal Reserve urged banks to make credit easier for businesses and individuals recovering from the attacks, but also warned that these actions could temporarily impact bank balance sheets.

Many economists expect the Fed to cut rates sometime soon after the stock market reopens, which is scheduled for Monday. The move, expected to be about a half percentage point, would attempt to bolster the economy, which was already close to recession even before the attack that devastated a large part of New York's Financial District and left an untold number of dead and injured.

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"This event could not have come at a worse time for the economy," David Jones, Chief Economist, Aubrey G. Lanston, told CNNfn. "We were already flirting with recession."

Key economic data released Thursday, but encompassing time periods before the attacks, reflects this.

Consumer spending, which accounts for nearly two thirds of the U.S. economy, was dropping even before the tragedy. The University of Michigan's preliminary consumer confidence reading fell to 83.6 in September the lowest level this year from 91.5 in August. Economists had expected a reading of 90.8.

Also on Thursday, the Labor Department said that new jobless claims jumped to 431,000 from a revised 410,000 the prior week, well above analysts' expectations. Rising joblessness impacts consumers' ability to spend and refuel the economy.

However, retail sales in the United States rose in August, the government said Friday, a sign of possible strength in the world's largest economy. While wholesale prices rose more than expected, the increase was due largely to volatile food and energy costs.

Dollar mixed

In currency trading, the dollar fell against the euro on concern that Afghanistan's Taliban government is talking about defiance and possible retaliation, should the United States attack as a response to Tuesday's attack on New York and Washington.

The euro rose to 92.12 U.S. cents, up from 91.16 cents late Thursday.

graphic   VIDEO  
graphicMayor Rudolph Giuliani says as much of Wall Street as possible will be reopened for Monday.
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But the yen weakened as the dollar traded at ¥117.09, compared with ¥118.79 Thursday. Japan is highly dependent on imported oil from regions such as the Middle East.

The U.S. stock exchanges are scheduled to open Monday after being closed for four days, the longest shutdown since World War I. New York Mayor Rudolph Giuliani, in a news conference Friday, said the city would push to get as much of the area around the New York Stock Exchange cleared by Monday.

"We're going to try very hard to open up as much of it as possible," Giuliani said at a news conference.  graphic

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