Pat Dollard

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Related: Oil Falls Over $4.00 A Barrel Overnight: SINGAPORE (AP) — Oil prices steadied Tuesday in Asia after falling more than $4 a barrel overnight. The contract dropped $4.53 to settle at $105.68 a barrel Monday, hours after crude futures reached a new trading high of $111.80. Many economists believe the Fed will deliver another three-quarter-point cut or perhaps even a full one-point reduction at Tuesday’s meetings. If a large enough cut materializes, analysts expect oil prices to rally in the following days.

“If recent history is a guide, a 100 basis point reduction by the Fed (Tuesday) could result in oil rising to the $114 to $116 range over the course of the next weeks,” wrote Platts Chief Economist Larry G. Chorn in a research note.

In the past several months, Fed rate cuts have fed rallies in oil prices. Interest rate cuts, and even the prospect of future cuts, tend to weaken the dollar further, drawing fresh investing into oil futures.

Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is down.

But “just the opposite is also possible, if the market pays more attention to (an) economic slowdown,” said Koichi Murakami, a broker at Daiichi Shohin. “It’s hard to predict, as prices these days have moved totally unconnected with the crude’s fundamentals.”

The Independent:

The UK’s leading shares bounced back from yesterday’s market turmoil today after a late rally on Wall Street cheered investors.

The FTSE 100 Index was 87.9 points higher at 5501.4 – or 1.5 per cent – in early trading amid expectations of interest rate cuts from the US Federal Reserve tonight to combat the growing credit crisis and aid a faltering US economy.

Stock markets have been shaken by the rescue and cut-price sale of US investment bank Bear Stearns, but Wall Street ended a volatile session in positive territory on hopes of the move, which could see US interest rates fall by as much as 1 per cent.

Today’s upbeat start came after a major sell-off wiped £51 billion from the value of the UK’s biggest companies yesterday.

On a dramatic day which saw the Bank of England pump an extra £5 billion into frozen money markets, the Footsie tumbled 3.9 per cent to its lowest level for more than two years.

But the strong US finish also led to modest gains in Asian stock markets overnight, as global stock exchanges take their lead from Wall Street.

Martin Slaney, head of derivatives at GFT Global Markets, said: “Stocks continue to be steered by the US markets, and a late rally in US stocks yesterday looks set to restore some confidence to European investors.”

But other City watchers warned of further uncertainty ahead, as major US investment banks reporting results this week could also unveil billions more in write-offs on the mortgage-backed investments at the centre of the credit crisis.

CMC Markets trader Claire Collingwood said: “It’s got the potential to be another choppy day. There’s likely to be a lot of caution in the market, but tonight’s Fed verdict is also going to be worth watching as a significant cull in rates is expected.”

The expected cut would be the Fed’s second such action in three days after a rare Sunday move in which it lowered the rate at which it lends to banks to 3.25 per cent.

The decision came after investment bank Bear Stearns became the biggest victim of the crunch yet when forced to seek emergency funding last Friday – eventually being bought by rival JP Morgan Chase for a cut-price £236.2 million US dollars (£116.4 million).

The company was heavily exposed to the mortgage-backed investments hit by the credit crunch and last week rumours of problems at the business swept the market, leading to a cash crisis at the firm.