Markets volatile on mixed signals from Fed

Hopes of a US interest rate cut saw European markets open strongly today, although gains had fizzled out by lunchtime.

London's blue-chip FTSE 100 index added as much as 21 points this morning, hitting an intra-day high of 6,153.

The initial bounce came after comments made by US Federal Reserve Ben Bernanke yesterday in which he appeared to suggest that interest rate cuts could be an option in the future. In a letter, Bernanke stated that he was prepared to act as needed' to ensure that troubles in the credit market did not have an adverse impact on the economy.

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However, US stock futures had fallen this morning as doubts began to creep in. An article by Wall Street Journal correspondent Greg Ip suggested that the Fed was in no rush to cut rates. And a report by Lehman Brothers Holdings revealing that it expected the country's largest securities firms to be hit by turmoil in the credit market also dampened sentiment.

The FTSE 100 had fallen back to 6,146 as the market's mood shifted. Elsewhere in Europe, the Frankfurt DAX-30 was down 1 point to 7,438, whilst the Paris CAC-40 was up 15 points to 5,535, but well off an intra-day high of 5,603.

However, oil majors including BG Group and Shell were boosted by the high price of crude, which remained well above the $73 mark this morning, and positive broker comment from Desdner Kleinwort.