Michael P. Regan and Rita Nazareth
Bloomberg
September 21, 2011
U.S. stocks slid, while Treasuries and the dollar rallied, after the Federal Reserve announced plans to buy $400 billion of long-term debt in an effort to combat “significant downside risks” to the economy.
The Standard & Poor’s 500 Index tumbled the most in a month, losing 2.9 percent to 1,166.76 at the 4 p.m. close in New York and extending a three-day drop to 4.1 percent. Ten-year Treasury yields dropped to a record low and 30-year bond rates slid to the lowest since January 2009, while two-year yields rose. The Dollar Index climbed 1 percent to a seven-month high of 77.802. Lead, nickel and sugar fell more than 3 percent to lead the S&P GSCI Index to a one-month low.
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Financial shares in the S&P 500 led losses and sank to a two-year low after Moody’s Investors Service cut credit ratings on three banks and the Fed said “strains in global financial markets” were among risks to the economic outlook. The Fed will replace some shorter-term debt in its portfolio with longer-term Treasuries in an effort to further reduce borrowing costs and keep the economy from relapsing into a recession, confirming market speculation that policy makers were planning an “Operation Twist” similar to a program in 1961.
“Markets took note of the Fed’s downward revision of the economic outlook and upgrading of downside financial risks,” Mohamed A. El-Erian, chief executive officer at Pacific Investment Management Co. in Newport Beach, California, wrote in an e-mail. Pimco is the world’s largest bond-fund manager. “While Fed purchases can influence Treasury and mortgage valuations, it is limited in its ability to deliver economic outcomes.”
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