Dollar falls on Fed comments

Special Report:Global Financial Crisis

NEW YORK, April 29 (Xinhua) -- The dollar fell against most major currencies on Wednesday as investors' risk appetite was boosted by comments from the U.S. Federal Reserve.

The Fed decided to keep the target range for the federal funds rate at zero to 0.25 percent, a record low. The central bank said in a statement that the economy has continued to contract, though the pace of contraction appears to be somewhat slower.

Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit, the Fed said.

The U.S. Commerce Department reported that U.S. gross domestic product decreased at an annual rate of 6.1 percent in the first quarter of 2009. The loss was larger than expected but slight higher than the previous quarter.

Personal consumption expenditures, which account for two-thirds of U.S. economic activities, increased 2.2 percent in the first quarter, in contrast to a decrease of 4.3 percent in the previous quarter. Durable goods increased 9.4 percent, nondurable goods increased 1.3 percent.

The euro bought 1.3289 dollars in late New York trading compared with 1.3147 dollars it bought late Tuesday. The pound rose to 1.4772 dollars from 1.4620 dollars.

The dollar fell to 1.2008 Canadian dollars from 1.2190 Canadian dollars, and fell to 1.1358 Swiss francs from 1.1440 Swiss francs. It rose to 97.68 Japanese yen from 96.45 Japanese yen.

U.S. stocks rebound strongly on Fed comment

NEW YORK, April 29 (Xinhua) -- Wall Street rebounded strongly on Wednesday as the Federal Reserve's comment that the economic recession is easing helped boost market sentiment.

Major indexes of the U.S. stocks gained more than two percent, and the Dow Jones industrial average surged nearly 169 points to the highest close since February 9.

The Fed concluded its two-day monetary policy meeting on Wednesday afternoon and said in a statement that while the U.S. economy is still contracting, the pace of decline "appears to be somewhat slower." The Fed also decided to leave key interest rates at near-zero level.

Investors also reacted positively to the worse-than-expected gross domestic product report, focusing on the bright spots. U.S. GDP shrank at an annual rate of 6.1 percent in the first quarter, more than the five percent slide economists had expected. But consumer spending, which accounts for over two-thirds of U.S. economic activity, rose 2.2 percent, and business inventories saw a severe drop.

Elsewhere, Exxon Mobil Corp., the world's largest oil company, and Conoco Phillips advanced as crude rebounded near 51 dollars a barrel. And Citigroup Inc. and Bank of America gained as Fox-Pitt Kelton Cochran Caronia Waller lifted its stance on U.S. banks.

The Dow Jones jumped 168.78, or 2.11 percent, to 8,185.73. Broader indexes also moved higher. The Standard Poor's 500 index advanced 18.48, or 2.16 percent, to 873.64; and the Nasdaq rallied38.13, or 2.28 percent, to 1,711.94.

U.S. Fed leaves key interest rate unchanged

WASHINGTON, April 29 (Xinhua) -- The U.S. Federal Reserve on Wednesday held a key interest rate unchanged at a record low of between zero and 0.25 percent to support the struggling economy which has been in a recession since December 2007 and snatched 5.1million jobs.

Concluding a two-day policy-*** meeting, the central bank said it sees signs the recession may be easing, but warned that the economy is likely to remain weak.

"Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time," the Fed said in a statement following the meeting.

The Fed "continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability," it added.

In the statement, the Fed repeated its position that it "will employ all available tools to promote economic recovery and to preserve price stability."

It voted unanimously to maintain the target range for the federal funds rate, which commercial banks charge each other on overnight loans, at zero to 0.25 percent, and stated that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

Meanwhile, the central bank would carry out its vast program to purchase Treasury debt and other securities "to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets."

As announced in March, the Federal Reserve will purchase a total of up to 1.25 trillion dollars of agency mortgage-backed securities and up to 200 billion dollars of agency debt by the end of the year.

In addition, the Fed will buy up to 300 billion dollars of Treasury securities by autumn, as part of its plan to bring down interest rates it cannot directly control, according to the statement.

Doing so would help the ailing economy because many kinds of debt -- from mortgages to corporate bonds -- are linked to Treasury rates. Fed purchases could boost Treasury prices and drive down their rates. That would ripple through and lower rates on other kinds of debt.

The Fed's decision to leave the key interest rate unchanged was in line with economists' expectations.

Many economists now predict that the Fed will hold the bank lending rate in this low level for the rest of this year and for most -- if not all -- of next year.

Like many private economists, the Fed at present does not expect inflation to become a problem. In light of increasing economic slack here and abroad, the Fed expects that inflation will remain "subdued," the statement said.

Moreover, it sees "some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term."

Some economists, however, said that it's mindful of the risks of pumping more money into the economy, bailing out financial institutions and leaving the key rate at a record low for too long.

Those steps could ignite inflation when the economy begins recovery, put taxpayers' money in danger and encourage companies to make high-stake gambles, they warned.

Against this backdrop, the Fed pledged in the statement it will "continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of financial and economic developments."

In the first quarter of this year, the U.S. economy shrank at an annual rate of 6.1 percent, only slightly smaller than the 6.3-percent drop in the previous quarter, the Commerce Department reported on Wednesday.

Many analysts were predicting the U.S. economy would shrink less in the current April-June period as the government's stimulus begins to take hold.

But the recent outbreak of swine flu, which started out in Mexico and has spread to the United States and elsewhere, poses a new potential danger. The flu could stifle trade and force consumers to cut back further, worsening the recession.

For all of this year, the economy of the United States, at the center of an intensifying global financial storm, is now projected by the International Monetary Fund (IMF) to contract by 2.8 percent in 2009, following the 1.1-percent growth in 2008, the smallest gain since 2001.

Despite large cuts in policy interest rates, credit is exceptionally costly or hard to get for many households and firms, reflecting severe strains in financial institutions, the IMF said last week in its latest World Economic Outlook report.

"In addition, households are being hit by large financial and housing wealth losses, much lower earnings prospects, and elevated uncertainty about job security, all of which have driven consumer confidence to record lows," it warned.

The Obama administration is counting on the 787-billion-dollar stimulus, which combines tax cuts and increased government spending on public projects, to help bolster economic activity later this year.