March 3, 2020 / 6:45 PM / 25 days ago

GLOBAL MARKETS-Gold jumps, stocks trade erratically after Fed's rate cut

(Adds comment, details; update to U.S. afternoon trading)

* Federal Reserve cuts interest rates by 50 basis points

* Gold soars 3% after Fed’s emergency rate cut

* Dollar sinks, oil pares initial gains

By Herbert Lash and Matt Scuffham

NEW YORK, March 3 (Reuters) - Global equity markets seesawed erratically in volatile trade and gold prices rose more than 3% on Tuesday after the Federal Reserve cut interest rates in an emergency move to shield the U.S. economy from the impact of the coronavirus.

The U.S. central bank said it cut rates by a half percentage point to a target range of 1.00% to 1.25% as the “coronavirus poses evolving risks to economic activity.”

Fed Chair Jerome Powell said in a statement that the coronavirus would weigh on the U.S. economy for some time. He said he believed the central bank’s action would provide “a meaningful boost to the economy.”

The unanimous decision by policymakers to cut rates before their next scheduled policy meeting on March 17-18 reflects the urgency with which the Fed felt it needed to act to prevent a potential global recession.

Stocks on Wall Street initially spiked more than 2% on the Fed’s surprise statement. But the Dow, Nasdaq and S&P 500 later fell by that much in afternoon trading.

President Donald Trump said his administration was working with Congress to pass an emergency spending measure to ramp up the U.S. response to the coronavirus, adding that he expects lawmakers to authorize about $8.5 billion.

The Fed’s rate cut “spooked investors after the strong rebound (on Monday) because it was made right away and it was 50 basis points,” said Alan Lancz, president of Alan B. Lancz & Associates Inc in Toledo, Ohio.

“It was larger than people (were expecting), and some may be thinking, ‘Ooh, are things worse than we think?’”

The Fed’s announcement largely validated expectations from investors for aggressive policy action, said Candice Bangsund, a global asset allocation strategist at Fiera Capital in Montreal.

“It’s become increasingly clear that policymakers have made stemming the damage from the outbreak a priority, which should help to place a floor under risky assets in the near-term.”

Shares in Europe rose to trade more than 2% higher on the day, while MSCI’s all-country world index rose almost 1%.

The Group of Seven finance officials said in Tokyo they would use all appropriate policy tools to achieve strong, sustainable global growth and safeguard against downside risks posed by the coronavirus. Investors dismissed the statement as too little to confront the economic impact of a virus that has killed more than 3,000 people worldwide.

The Fed’s rate cut and G7 statement came after global stocks last week suffered their worst rout in a decade on fears the disruption to supply chains, factory output and global travel caused by the epidemic could seriously slow the world economy.

“The G7 is essentially trying to reassure markets but it doesn’t have the ability to really impact interest rates directly,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas. MSCI’s gauge of stocks across the globe shed 0.66% and emerging market stocks rose 1.14%.

The pan-European STOXX 600 index rose 1.37%

The Dow Jones Industrial Average fell 573.89 points, or 2.15%, to 26,129.43, the S&P 500 lost 58.88 points, or 1.91%, to 3,031.35 and the Nasdaq Composite dropped 181.57 points, or 2.03%, to 8,770.59.

Gold surged. Spot gold added 3.2% to $1,641.60 an ounce.

The dollar fell across the board.

The dollar index fell 0.32%, with the euro up 0.29% to $1.1164.

The Japanese yen strengthened 1.07% versus the greenback at 107.18 per dollar.

Oil prices rose but remained below session highs.

Brent crude rose 19 cents a barrel to $52.09, off a session high of $53.90 a barrel hit immediately after the rate cut. U.S. West Texas Intermediate (WTI) added 31 cents a barrel to $47.06 a barrel, after trading as high as $48.66.

Reporting by Herbert Lash and Matt Scuffham; additional reporting by Caroline Valetkevitch; Editing by Dan Grebler

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