Some analysts say the urgency of the Fed moves strengthened market worries on a deepening of credit crunch brought by the sub-prime crisis. The central bank was scheduled to have a regular meeting on Tuesday, but decided to announce the emergency steps two days before the session.
On the other hand, the Fed’s approval of JP Morgan Chase’s buyout of Bear Stearns also prompted market speculation on the financial health of other financial institutions.
JP Morgan acquired Bear Stearns for 2 dollars a share, or 236 million dollars in total.
Shares of Bear Stearns, which stood at 150 dollars one year ago but dropped to 30 dollars last Friday, sank to less than 3 dollars in early trading on Monday.
The Fed’s emergency cut in discount rate also heightened market expectations of even bolder measures by the central bank.
Investors now believe the Fed will cut interests by 1 percentage point on Tuesday, instead of the original forecast of 0.5 to 0.75 percentile.
