U.S. stocks jumped today as the Federal Reserve pledged to provide more liquidity early next year to help relieve the credit markets squeeze. The Feds new Term Auction Facility, where banks can bid to borrow money at competitive rates, will hold auctions for as long as necessary to address elevated pressures in short-term funding markets, according to a statement. The next auctions are slated for Jan. 14 and Jan. 28.
The Fed continues to draw a sharp distinction between economic needs and liquidity needs, Brian Hillard, director of research at Societe Generale, said in a note to clients. Financial markets will begin the new year under significant pressure, but there are reasons to believe that funding pressures will begin to ease gradually once we get through the critical year-end period.
Adding to the bullish mood was news that Singapores Temasek Holdings would give Merrill Lynch a $5 billion capital injection. Also, the technology sector rallied on good earnings reports.
The Dow Jones industrial average closed up 205.01, or 1.55%, at 13,450.65; the S&P 500 rose 24.34, or 1.67%, closing at 1,484.46; and the Nasdaq composite was up 51.13, or 1.94%, to close at 2,691.99. All numbers are preliminary.