Wall Street rebounds despite gloomy forecast

Last Updated: 8 hours 1 minute ago

The US Federal Reserve has downgraded its forecast for the American recovery, denting a rebound in US stocks.

The
Federal Reserve promised to hold interest rates near zero until at
least mid 2013 in an effort to support the flagging American economy and
fragile global markets, the first time the central bank has given a
firm date.

It also said the risk of a downturn in the already battered economy had increased.

On
Wall Street stocks shed some of their gains in the wake of the move,
which faced considerable internal dissent, three officials opposing it.

However, bruised stocks rebounded strongly, one day after their steepest plunge since the 2008 financial crisis.

The
Dow Jones closed up nearly 4 per cent after Monday's 5 per cent-plus
plunge while the broader S&P 500 climbed 4.75 per cent and the
tech-heavy Nasdaq surged 5.3 per cent.

The rebound came after
Monday's rout driven by the news that Standard & Poor's had
downgraded the US credit rating as well as worries about a new
recession.

Earlier in the day, European shares ended days of
sharp losses, with London closing up 1.89 per cent, Paris up 1.63 per
cent and Frankfurt ending nearly flat with a 0.1 per cent drop.

Eurozone bond purchases by the European Central Bank meanwhile eased pressure on governments in Italy and Spain.