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As Dollar Shrinks, Oil Rises Above $50

The Federal Reserve’s decision to fire up the printing presses and buy $1 trillion in debt continued to wash over world financial markets on Thursday, dragging down the value of the dollar and pushing the prices of oil and gold higher.

But on Wall Street, stocks slid into negative terrain, a day after they bounced higher in response to the Fed’s surprise announcement that it would purchase $750 billion in mortgage-backed securities and $300 billion in Treasury debt.

Financial shares, which had pulled Wall Street higher on Wednesday, tugged markets in the opposite direction. Shares of Citigroup fell 15.6 percent, to $2.60, as the banking giant announced a reverse stock split. Bank of America, JPMorgan Chase and Wells Fargo were all lower.

As commodity prices rebounded, shares of companies that produce basic goods like plastics, chemicals and metals moved higher, softening Wall Street’s losses.

The Dow Jones industrial average opened higher but quickly sagged and closed down 85.78 points, or 1.2 percent, to 7,400.8, its deepest decline in a week. The broader Standard & Poor’s 500-stock index fell 10.31 points, or 1.3 percent, to 784.04. The technology-heavy Nasdaq index was off 0.5 percent.

Many analysts hailed the Fed’s latest plan as a bold but risky gambit to stimulate the economy and lower mortgage rates.

“What you’ve done is you’ve created affordability,” said Scott Simon, head of mortgage-backed securities at the Pacific Investment Management Company. “This will make housing bottom sooner.”

Mortgage rates across the country dropped to 4.98 percent for the week ending Wednesday, from 5.03 percent the week earlier, according to data released Thursday by the government-controlled housing giant Freddie Mac.

Unable to cut its target rate any more to try to jump-start the economy, the Fed is now ratcheting up other efforts, like buying securities and essentially printing money, to try to loosen credit markets. But economists said such efforts could lead to long-term inflation, and could drive down the value of the dollar.

“They clearly bit the bullet,” said James Knightley, senior economist at ING Financial Markets in London. “There’s no guarantee that this will actually work. While they are expanding the money supply, it’s only going to generate economic activity if people actually borrow. You need the demand on the other side to actually get the credit growth.”

As the euro, the yen and other major currencies continued to gain ground against the dollar on Thursday, the price of oil — which is traded in dollars — rose $3.47 to settle at $51.61 a barrel in New York, its highest point since late November. While crude oil is still cheaper than its summertime peaks of more than $145 a barrel, prices have rebounded from their lows of $33 a barrel.

The rise in oil prices gave a boost to some energy companies, including Chevron and Marathon Oil.

The price of government bonds, which rose sharply following the Fed’s announcement, fell back slightly.

The Treasury’s 10-year note fell 19/32, to 101 9/32. The yield, which moves in the opposite direction from the price, rose to 2.6 percent, from 2.53 percent late Wednesday.
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