Cut in Prime Rate Fails to Boost Stocks: Prime Rate Cut Fails to Boost Stocks
Major U.S. banks lowered their prime lending rates yesterday to 11.5 percent from 12 percent in the wake of FridayÛªs half-point cut in the Federal Reserve BoardÛªs discount rate, but these latest declines in interest rates were not enough to boost the stock market, which closed sharply down on the day.</br></br>The Dow Jones Industrial Average finished down 21.25 points at an even 1000. The list of blue chip stocks on the New York Stock Exchange has lost 65 points</br></br>Chase Manhattan, the nationÛªs third largest bank, led the prime rate move yesterday. It was quickly followed by Chemical Bank, which had raised its prime to 12 percent only last week, after several weeks as the only major bank charging 11.5 percent. The last time the prime was generally as low as 11.5 percent was in September, 1980.</br></br>Banks can afford to lower their prime because the cost of funds that they borrow in the money markets has declined.</br></br>Yesterday the federal funds rateÛÓ charged on overnight money that the banks borrow from each otherÛÓwas below 9 percent.