Dow Jones surges as fears of European debt crisis subside

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Dow Jones surged more than 300 points Monday when the European Union pledged $1 trillion to keep the European debt crisis from going global. Flickr photo.

The Dow Jones surged Monday, reacting to a European Union instant cash loan for avoiding a European debt crisis. The Dow Jones today, in sharp contrast to late last week, rose more than 300 points Monday morning. The Greek bailout and fear that a European debt crisis could spread around the world had investors running scared last week. The stock market lost nearly 1,000 points Thursday when fear, panic and high speed trading triggered a mass sell-off of blue chip stocks.

Dow Jones today and European debt

Dow Jones today sharply contrasts last week’s dive as investors feared the $140 billion Greek bailout would trigger a European debt crisis, stifling a fledgling global economic recovery. The Associated Press reports that in recent months Dow Jones was climbing slowly and steadily on news that the  economy has been growing three straight quarters and job creation is gaining. But the stock market dropped four straight days last week as volatility returned to Dow Jones today. Investors are skittish because big swings were common when the U.S. credit crisis grew in late 2008, and the stock market bottomed out in early 2009.

Dow Jones and the Greek bailout

The Dow Jones and stock markets around the world have been in turmoil as European leaders, despite the Greek bailout, appeared incapable of making decisions to keep debt-ridden countries from defaulting. Moody’s Investors Service reports that Greece may have its credit rating cut to junk within the next four weeks. Greece is already rated junk at Standard & Poor’s.

European debt crisis averted?

Dow Jones surged when European leaders were finally spurred to act on the European debt crisis as the euro dropped to a 14- month low last week. The 16 nations using the euro as currency agreed to offer financial assistance valued at almost $950 billion in loan guarantees from the European Union to countries under attack from speculators such as Greece, Portugal and Spain.

U.S. cavalry to the rescue

The U.S. Federal Reserve and other central banks also pitched in to keep the European debt crisis from becoming a  global financial crisis. The New York Times reports that the Federal Reserve will begin printing dollars and exchanging them for euros to provide some liquidity for European money markets and banks. In a statement, the Fed said the currency swaps were intended to make it easier for European companies, institutions and governments to borrow dollars when they need them, “and to prevent the spread of strains to other markets and financial centers.”

Stock market rebounds with Euro

Dow Jones numbers grew Monday as the rise in the euro and a drop in the dollar pushed the stock market higher. A weaker dollar boosts the price of commodities traded in dollars because they become more attractive to buyers outside the U.S. A drop in the dollar also helps boost earnings at U.S. companies that do business overseas. As investors returned to stocks on Monday, U.S. bond prices fell. Gold also fell. Both surged last week as investors ran from risky stocks toward safer assets.

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