NEW YORK (Reuters) - The broader U.S. stock market rose on Tuesday while government bond prices gained on safe-haven buying as investors speculated the U.S. Federal Reserve may cut interest rates sooner rather than later to temper recent global credit turmoil.
Investors are increasingly convinced the Federal Reserve will cut the key federal funds rate after it lowered the discount rate it charges banks for direct loans in a surprise move last Friday
"Everyone is waiting for some sort of movement from the Fed," said Stephen Massoca, co-chief executive of San Francisco-based investment bank Pacific Growth Equities.
Many global credit markets have essentially dried up in recent weeks as a crisis that started in high-risk U.S. subprime mortgages spread to other markets, leading to a drastic pullback in lending.
That has driven investors to shun any asset associated with risk, including stocks, high-yielding corporate bonds, and even gold and other commodities, for the perceived safety of government securities -- particularly those of the shortest duration.
In currency markets on Tuesday, the yen rose as persistent jitters about global credit conditions led investors to shed risky assets funded by borrowing in the Japanese currency.
Rate cut speculation was fanned on Tuesday by comments from U.S. Sen. Christopher Dodd after a meeting with Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Henry Paulson.
The Connecticut Democrat, chairman of the Senate Banking Committee and a contender for the White House, said Bernanke told him that the Fed chief was "absolutely" willing to use all available tools to quell tumultuous financial markets.
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