US stocks surge as Federal Reserve cuts rates by 0.75 points

The US Federal Reserve (Fed) cut today its federal funds rate by a quarter of a percentage point, giving a boost to US stock markets. The federal funds rate — the interest that banks charge each other — is now down to 2.25%, the lowest point since late 2004.

A few minutes after the announcement, the Dow Jones Industrial Average fell 100 points but soared by 400 points within the next hour. It had been up more than 300 points prior to the announcement after investment banks Lehman Brothers and Goldman Sachs reported better-than-expected results for the first quarter. The market welcomed the development and ignored the issue of the collapse of Bear Stearns, another investment bank, which was bought by JP Morgan Chase & Co early this week.

US stock markets are expected to close higher today, so expect an upsurge in the Philippine stock market as well when it opens a few hours from now.

It remains to be seen, however, if investors will maintain their position or cash in the profits before retiring for the long holiday. The Philippine Stock Exchange is closed until Friday in commemoration of the Christian tradition of Holy Week. Trading resumes on Monday, March 24.

US Federal Reserve cuts interest rate by 0.75 points

In a surprise move, the US Federal Reserve cut today the federal funds rate by three-quarters of a percentage point, in an attempt to fan the increased fears of a recession in the US economy.

The federal funds rate, the interest that banks charge each other on overnight loans, was slashed from 4.25% to to 3.5% on January 22, Tuesday, and was the biggest one-day move by the central bank in recent memory.

The decision was taken during an emergency telephone conference with Fed officials on Monday night. The move caught the financial markets by surprise because the Fed is slated to deliberate on the rate cut not this week but next week.

In a brief statement, the Fed said it decided to cut the federal funds rate “in view of a weakening of the economic outlook and increasing downside risks to growth.”

The move was made before markets had opened in the United States, hoping that the interest rate cut would limit the expected decline in U.S. stocks.

At the opening bell, the Dow Jones lost 300 points and fell even further by 465 points, but managed to rebound to close at 11,971.19, 1% higher from last week’s trading.

Will the Philippine stock market reverse its current trend of decline to follow the American stock market’s performance? We find out in a few hours.

Taxation of UITF income

Q. Will a separate tax be imposed on my earnings once I redeem my Unit Investment Trust Funds (UITFs) participation?

A. No, as long as proper taxes have already been collected prior to the redemption of your UITF participation. That’s according to Senen Quizon, a tax manager at Punongbayan & Araullo, who wrote the article “Taxation of Unit Investment Trust Funds (UITFs)” published in Business World Philippines on August 2006.

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