After weeks of extraordinary efforts by the world’s governments and central banks, the frozen flow of credit began to thaw on Monday.
The tentative re-emergence of trust among lenders — a rare commodity of late — raised hopes that the immediate financial pressures on banks, businesses and municipalities could ease somewhat, cushioning the blow of a likely recession.
That encouraging signs appeared at all was enough to bring a wave of relief to Wall Street, where the Dow Jones industrial average rose 413 points, or 4.7 percent. As recently as last Friday, it was far from certain how quickly the unprecedented moves to unlock global credit, including the partial nationalization of some of the world’s biggest banks, would make a difference.
“Fear really appears to have receded considerably,” said John V. Miller, the chief investment officer of Nuveen Asset Management.
A benchmark borrowing rate among banks, known as Libor, dropped on Monday by the largest amount in nine months, an indication of growing confidence in the financial system. Local and state governments found buyers for bonds that had gathered dust for weeks. Banks and money market funds opened their coffers to corporate borrowers, reducing rates on short-term loans.
The improvements in the credit markets came as welcome news to American businesses large and small, which depend on short-term financing for their daily operations. Economists warned, however, that American consumers might face a more difficult road.
On Capitol Hill, the chairman of the Federal Reserve, Ben S. Bernanke, told lawmakers that the “risk of a protracted slowdown” merited the introduction of new measures to help individual Americans gain access to credit. Bernanke did not specify the size or scope of any plan.
The Bush administration is under pressure to do more to help the economy, and Democrats in Congress plan to devise a second stimulus measure. The Treasury Department, meanwhile, hopes to spur a new round of mergers among banks by steering some of the money in its $250 billion rescue package to banks that are willing to buy weaker rivals, according to government officials.
While these efforts may provide some relief, the concern is that it may take time before they have a major impact on the economy. Loans are likely to remain scarce for many small businesses and consumers.
Credit is unlikely to flow freely soon, said Max Bublitz, chief strategist at SCM Advisors, an investment firm in San Francisco. “It’s going to be doled out in small pieces over the next few months,” he said.
Since the collapse of Lehman Brothers in mid-September, the credit markets entered a state of near paralysis, keeping many businesses and municipalities from obtaining financing.
For now, market watchers can celebrate that credit is being given out. Interest rates on common types of commercial paper — effectively short-term IOUs issued by businesses — fell to a four-month low.