UPDATE 4-Toronto stocks dive in "kneejerk" over Fed cuts

Tue Dec 11, 2007 5:05pm EST
 
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By Wojtek Dabrowski

TORONTO Dec 11 (Reuters) - The Toronto Stock Exchange's main index plunged more than 200 points on Tuesday as investors who expected an aggressive U.S. interest rate cut were disappointed by a more modest move and instability fears continued to weigh on the market.

The S&P/TSX composite index was down 216.65 points, or 1.55 percent, to close at 13,723.71.

The drop wiped out gains seen earlier in the session and came after the U.S. Federal Reserve cut its key fed funds rate by 25 basis points to 4.25 percent.

The U.S. central bank also reduced the discount rate it charges banks for direct loans by 25 basis points to 4.75 percent.

While most economists and many investors anticipated a quarter-point rate cut, some had called for a bolder reduction by the Fed of 50 basis points as the U.S. copes with tight credit markets and a protracted housing slump.

However, those calling for a bigger cut were seen as being in the minority and the selloff took some observers off guard.

"I'm just very surprised we're getting such a negative reaction," said Glenn MacNeill, vice-president of investments at Sentry Select Capital Corp.   Continued...