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US stock markets rally from worst crash in two years as government says it will keep interest rates near zero until 2013 Wall Street bounced back on Tuesday from the worst stock market crash in two years as the US government moved to halt the fall and pledged to keep interest rates near zero until 2013. It was another wild day on the US stock markets as share prices soared then fell then rose again. At the close, the Dow Jones industrial average was up 430 points, or nearly 4%. It shot up more than 500 points in the last hour, the biggest one-day gain since 23 March 2009. The rally followed one of the worst days on world stock markets since Lehman Brothers collapsed in 2008, setting off the financial crisis. Monday’s crash came as investors reacted to Standard & Poor’s decision to cut the US credit rating, a historic first that was slammed by the White House. The rally came as the US Federal Reserve said it was prepared to step in should growth and unemployment continue to weaken over the coming months. Unemployment remains above 9% in the US. In a statement the Fed said: “Economic growth this year has been considerably slower than expected.” Earlier, London’s FTSE 100 shrugged off the riots and rose for the first time in eight days in anticipation that the Federal Reserve chairman, Ben Bernanke, would propose measures to prevent the US economy sliding back into recession. The swings in share prices on Wall Street mirrored wild gyrations in the FTSE earlier in the day, which saw the City’s main share index down more than 250 points during the morning before rallying to finish up 96 at 5165 points. The rise meant that the FTSE avoided falling for eight consecutive days in a row for the first time since the build up to the invasion of Iraq in early 2003. European shares ended broadly higher, halting a 20% dive over the previous two and a half weeks. Bernanke stopped short of committing to a third round of quantitative easing, the process of electronic money creation that has pumped $2tn (£1.2tn) into the US banking system over the past two and a half years. The Fed said it expected “a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting” and anticipated that a jobless rate of about 9% would decline only gradually towards the level judged by the central bank to be consistent with keeping inflation low and employment high. It added that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013″, and had looked at a range of policy tools to promote a stronger low-inflation recovery. These would be employed “as appropriate” in the light of fresh information on the economy. Previously, the Fed had said it would keep borrowing costs low for an “extended period” but the commitment to maintain them at an exceptionally low level led to three members of the policy-making open market committee dissenting from the decision, the first time this has happened for almost 20 years. Cary Leahey, managing director and senior economist at Decision Economics in New York, said: “This is a lame way for the Fed to try to help the marketplace. They redefined extended period to mean at least mid-2013. But to today’s marketplace, what difference does it make if they tighten in 2012 or 2013?” On the foreign exchanges, the dollar lost 4% of its value against the Swiss franc, while the price of another safe haven – gold – was trading at a new record high. Bullion has gained about 13% since the end of June and peaked at a session high of $1,778.29 in New York before the Fed announcement. The price of oil slumped in the New York futures markets as dealers anticipated lower demand from a stuttering US economy. The prospect of low growth also drove interest rates on US bonds lower. The yield on the benchmark 10-year Treasury bill dropped to 2.27% compared to 2.34% at the start of the day. US economy US Interest rates Economics US unemployment and employment data Interest rates Dow Jones Stock markets Quantitative easing Ben Bernanke Commodities United States Dominic Rushe Larry Elliott guardian.co.uk