Big market jump on unexpected US good news

The Australian sharemarket leapt almost 4% higher in trading this morning, following a strong lead from US markets overnight.

At 12.15pm the S&P/ASX200 is trading at 5328.5, a solid 3.9%, or 201 points, up on last Thursday’s close.

The jump follows news from US investment bank JP Morgan that it will increase the amount per share it will pay for the ailing Bear Stearns from $US2 to $US10.

Although the bid is low, considering Bear Stearns shares were trading as high as $US171 in January 2007 and $US30.85 two weeks ago, it was enough to inject some confidence into the market, pushing the Dow Jones Index up to 1.52% to 12,548.64.

But it won’t be enough to get the wholesale lending market back on track, and that means the threat of further unofficial interest rate rises by the banks will continue to hang over business owners and mortgagees.

The gap between official interest rates and the price banks pay for cash on wholesale lending markets remained at about 0.6% last week, compared to an average 0.15% gap in 2007. Until that gap diminishes, the risk of further interest rate rises remains very real.