North American markets made positive gains and the loonie bounced back from a rough week Friday, after the U.S. Federal Reserve moved to calm plunging financial markets worldwide.
In response to the economic uncertainty, the Fed made the unexpected move of approving a half-percentage point cut in its discount rate on loans to banks before trading began.
That decision sent the loonie surging 1.22 cents to close at 94.22 cents US -- after running as high as 94.74 cents US -- as the greenback weakened.
Toronto's S&P/TSX composite index closed up 200.88 points to 13,049.58, after jumping almost 400 points -- still in positive territory for the year after a 200.06-point slide Thursday wiped out the TSX's gains for 2007.
On Wall Street, the Dow Jones industrials came down from a 322-point advance but ended the day ahead 233.3 points at 13,079.08.
The Fed decision means the discount rate -- the interest rate that it charges to make direct loans to banks -- will be lowered to 5.75 per cent, down from 6.25 per cent.
The Fed did not change its target for the more important federal funds rate, which has remained at 5.25 per cent for more than a year.
"In many ways, when you deal with a sick person, cutting the discount rate is holding their hand; cutting the Fed funds rate is giving them medicine'' John Johnston, chief strategist at The Harbour Group at RBC Dominion securities, told The Canadian Press.
He predicts markets are likely to see more slides until they hit a bottom, likely within a month.
"A lot of the sentiment indicators suggest we've had a massive deterioration but we're not at the final washout phase. They're saying another low is coming,'' Johnston said.
The action comes after the U.S. central bank infused billions of dollars into the banking system over the past week to keep that rate from rising above the target level. Other central banks, including the Bank of Canada, have made similar moves.
The announcement comes at the end of a week of punishing losses on stock markets amid fears of a global credit squeeze, sparked by the subprime mortgage market in the U.S.
European bourses also responded positively to the Fed announcement as London's FTSE 100 index gained 153.4 points to 6,012.3. Frankfurt's DAX 30 moved ahead 76.73 points to 7,346.8 and the Paris CAC 40 advanced 86.65 points to 5,352.12.
Asian shares, though, tumbled overnight, with the Tokyo benchmark diving 5.4 per cent.
The U.S. dollar's decline, worsening the earnings prospects for Japanese companies, added to the battering Tokyo's benchmark has been taking in recent sessions, sending the Nikkei 225 index crashing 874.81 points to close at 15,273.68, its lowest close in a year.
Hong Kong's blue chip-index Hang Seng Index dropped 1.4 per cent and the Korea Composite Stock Price Index lost 3.2 per cent after falling 6.9 per cent the previous session.
Taiwan's main stock benchmark fell 1.4 per cent to a three-month low at 8,090.29.
China's shares, which had been hitting new daily highs recently, fell for a second straight day, closing down 2.3 per cent.
Earlier Friday, Japan's central bank injected 1.2 trillion yen (US$10.5 billion) into money markets -- the third injection this week and triple the amount it injected the day before -- in a bid to curb rises in key interest rates.
Investors worldwide are struggling to regain confidence, analysts said.
"The fear factor has overtaken people,'' Song Sen Wun, regional economist at CIMB-GK Research Pte. Ltd., told The Associated Press.
"Whether this is a case of blind panic remains to be seen."
He said investors could realize that the fears are overblown as quickly as Monday.
Credit Suisse chief strategist Shinichi Ichikawa in Tokyo said any bad news ahead, such as a bank abroad faltering, could worsen the market jitters.
"The next couple of weeks will be a very tough time for global financial markets," he told AP.
With files from The Canadian Press and The Associated Press
