Stocks edge up after Fed adds liquidity

By Madlen Read
Associated Press
via Yahoo News
Wednesday, August 15, 2007

http://news.yahoo.com/s/ap/20070815/ap_on_bi_st_ma_re/wall_street;_ylt=A...

NEW YORK -- Stocks recovered some ground Wednesday, drawing some reassurance from the Federal Reserve's announcement that it was adding more cash to the banking system.

The market changed course several times in early trading amid conflicting announcements from the New York Fed over its plans to make a repurchase agreement -- in which it arranges to buy securities from dealers, who then deposit the money the Fed has paid them into commercial banks.

Ultimately, the Fed said it would buy $7 billion, following the Canadian central bank's announcement that it has temporarily expanded the list of eligible collateral it will accept when it makes injections. Central banks worldwide have supplied billions of funds to banks over the past week to make cash available for lending and keep interest rates stable amid signs that credit was drying up.

Now Wall Street is curious if the Fed will cut interest rates at its Sept. 18 meeting. On Wednesday, the Labor Department said its Consumer Price Index -- a gauge of price inflation on food, energy and consumer products -- rose 0.1 percent in July, meeting the consensus forecast of economists polled by Thomson Financial.

Price pressures have been keeping the Fed from lowering rates -- a move that would free up more cash and that could trigger a rally in the Dow, which is now nearly 1,000 points below its record close in mid-July above 14,000.

"Yes, the market would probably move dramatically higher if they made a cut," said Linda Duessel, market strategist at Federated Investors in Pittsburgh. "But I think it's more prudent to allow this correction to continue to unfold. After all, we're in the month of August and coming into September -- historically, the weakest months of the year. The market has been in need of a correction." ...

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