Positive economic and corporate data, coupled with the increased bid for Bear Stearns, reassured investors on Wall Street yesterday that the impact of the credit crisis may not be as severe as had been feared.

The Dow Jones industrial average ended the day up 2 per cent at 12,548.60. The Nasdaq index, which is laden with technology shares, rose 3 per cent.

Traders were also cheered by new housing data, which unexpectedly showed an increase in the sales of existing homes in February in the United States. After six months of house sale declines, the rise in February was interpreted as evidence that homeowners are prepared to slash prices to secure a sale.

The National Association of Realtors (NAR) said that sales of existing homes had risen by 2.9 per cent in February, which equates to an annual rate of 5.03 million homes. It represents the biggest increase for a year and caught economists by surprise. They had been expecting a small decline. Sales of existing homes last year fell by 12.7 per cent, the biggest contraction for a quarter of a century.

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The shock of $140 oil has created inflationary and deflationary pressures that threaten world economy and policy tools

• Former President Bush energy adviser says oil is running out

BACKGROUND

• Oil is the key to world recovery

• Banks may need to pump billions into scheme

• UK economic growth weakest for three years

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BACKGROUND

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The NAR said that the average sales price of a home in the US fell to $195,900 – marking the largest year-over-year drop on record. Lawrence Yun, the chief economist for the NAR, said that prices in some formerly overheated markets, such as California and Florida, were experiencing significant price declines.

Mr Yun said: “We’re not expecting a notable gain in existing-home sales until the second half of this year, but the [February] improvement is another sign that the market is stabilising.”

The further weakening of the dollar against both the yen and sterling triggered a rally in the price of oil as speculators sought to hedge themselves against the effect of the sliding greenback by buying commodities. The dollar weakened to $1.9841 against the pound and to $101.01 against the Japanese yen. Light, sweet crude rose 26 cents to $102.10 a barrel on the New York Mercantile Exchange.

The fall in the value of the dollar sparked further speculation that the Group of Seven countries will intervene to prop up the dollar.

Wall Street was impressed by a move by Washington to allow the Federal Home Loan Bank system to expand their holdings of Fannie Mae and Freddie Mac securities by more than $100 billion. The move is expected to help to stabilise the mortgage finance market.

Elsewhere, better-than-expected quarterly results from Tiffany, the jeweller, and WalGreen, the American drug store chain, encouraged hopes that consumers may not be as hurt by the credit crisis as many had feared.

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