CALDEIRÃO DE BOLSA

The Fed and other global central banks announce a new auction designed to let beleaguered financial institutions access more cash.




NEW YORK (CNNMoney.com) -- One day after disappointing Wall Street with a quarter-point rate cut, the Federal Reserve announced a plan to inject more cash into the financial system, a move that was cheered by investors.

The central bank said Wednesday that it planned to hold four auctions between Dec. 17 and Jan. 28. The first two auctions will be for up to $20 billion. The amount of the third and fourth auctions will be determined in January, the Fed said in a statement.

Banks will be able to submit bids through their local Federal Reserve banks and must put up collateral for the proceeds.

In essence, the Fed is giving beleaguered banks the opportunity to access funds it might need for year's end without having to borrow money directly from the Fed at the discount rate of 4.75 percent.

Some market observers suggested that banks would likely be to able to avoid the so-called stigma associated with the discount rate and borrow money through the auction process at a lower rate than the discount rate.

A senior Federal Reserve official, speaking during a background briefing for the media, confirmed this.

"There is no reason to believe there would be stigma associated with the use of this facility," the official said.

The Dow soared nearly 150 points, or 1 percent, Wednesday morning while the S&P 500 and Nasdaq each gained about 1.5 percent.

The Fed cut its federal funds rate, which is what banks charge each other for overnight loans, and its discount rate Tuesday. But the Dow plunged nearly 300 percent Tuesday and the S&P 500 and Nasdaq slid about 2.5 percent as many investors were hoping for a half-point cut.

The Fed official said that the sell-off on Tuesday did not affect the timing of the auction news.

"Market reaction yesterday had nothing to do with today's announcement. This has been in the works for a while. The market response was not a factor," the Fed official said.

The Fed added that it was coordinating with the Bank of Canada, European Central Bank, Bank of England and Swiss National Bank on the auction process in order to "address elevated pressures in short-term funding markets."

"This was a global effort among a number of central banks. We wanted to announce that together. We couldn't announce that yesterday as Europe was closed," the Fed official said.

"We were finalizing details, both our own and with other central banks. We and the other central banks wanted to make this announcement when the affected markets were open," the official added.