Greenspan returns Wall Street to a tentative calm

Having  raced up by over 200 points at the opening, the Dow Jones Industrial Index plummeted into negative territory by midday yesterday before recovering in the afternoon. At the close, the Dow had risen by 69.87, a rise of 0.82 per cent, while the Nasdaq was up 21.86 or 1.59 per cent to finish at 1397.12, write Conor O'Clery and Jane O'Sullivan

That's as near to stability as it gets on Wall Street these days. But it seems that after two days testimony on Capitol Hill, Federal Reserve chairman Mr Alan Greenspan has in fact steadied the markets a little. He told a House panel he was not concerned by the prospect that more US corporations might revise earnings downward given the focus on accounting practices. "I'm not concerned about any impact. If we get a lot of restatements, which I presume we may very well, I'm not sure that's all bad."

In Europe, shares rallied as benign earnings data from industry giants like Intel and Motorola lifted spirits. The positive earnings reports helped offset nagging fears about corporate profits, pushing markets higher.

However, analysts remained cautious, saying it was too early to predict the start of a bull phase.

"We were just getting to levels where selective buying was worthwhile," said one London-based equity strategist.

"We've had soothing comments from Federal Reserve chairman Alan Greenspan and good inflation figures and one gets the feeling that interest rates won't change this year in either the UK or the US. But there are still doubts about corporate profitability and accounts."

In Dublin, the ISEQ index of Irish shares gained 1.4 per cent, boosted by gains in leading stocks such as AIB, Bank of Ireland and CRH. A banking sector rally drove the FTSE up strongly from six-year lows in London. Mobile phone firm Vodafone was among the big gainers, adding 5.5 per cent after better-than-expected results from US handset-maker Motorola. In France, shares closed 3.8 per cent higher, their second-largest one-session rise this year, while German shares gained more than 1 per cent.

Meanwhile, the dollar benefited from the rise in the US stock market, pushing the euro back towards parity and climbing off Tuesday's 17-month lows against the yen. The euro fell to a session low of $1.0034 before the dollar gave up gains and edged back up to $1.0086 in afternoon trading.

A series of better-than-expected earnings reports have underlined the Fed chairman's assurances that the economy is improving. One stabilising factor was his implicit acknowledgement that the short-term interest rate target in the US would remain at its 40-year low of 1.75 per cent until the end of this year, and perhaps much of next.

This is unprecedented in the history of the Fed's fine-tuning of the US economy. When Mr Greenspan pared rates relentlessly last year, it was assumed he would reverse course once the economy recovered. Growth is improving but Mr Greenspan said the Fed would stick to its current rate until there was evidence that obstacles to growth were "dissipating enough to allow the strong fundamentals to show through more fully". From his testimony to the US Congress, Mr Greenspan seems to believe monetary policy is at present not effective in stemming the crisis in the markets, and raising short-term rates would depress consumer spending, the cornerstone of the recovery.

He acknowledged the low rate was not compatible with inflation but noted that inflation remained low. The "very low" levels of mortgage interest rates encouraged households to purchase homes, refinance and lower debt service burdens, he said.