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Dow climbs as Fed holds rates

The US Federal Reserve last night decided against raising interest rates from the current level of 5.5 per cent, despite the urging of experts who said a fresh rise was needed to pre-empt any increase in inflation.

The decision was well received on Wall Street, and indicated that the Fed judged signs of a slowdown in economic growth to be real and believed there was no need to make any adjustment following the 0.25 percentage point rise two months ago.

The Dow Jones index swung by more than 100 points following the announcement to close at 7,303.46, up 74.58 on the day.

There has recently been an unusual degree of discussion and uncertainty over rates, with analysts divided on whether a rise was justified.

A majority, however, had forecast that there would be no change, whether or not it was justified.

Only a week ago, Alan Greenspan, chairman of the Federal Reserve, caused confusion when he said: "While there is scant evidence of any imminent resurgence of inflation at the moment, there also appears to be little slack in our capacity to produce." His statement led to wild swings on the stock market as first the early part of his sentence, then the second caught the attention of dealers.

The economic figures are contradictory. The economy grew more rapidly in the first quarter than it had for a decade - at an annual rate of 5.6 per cent - and unemployment fell further in April to 4.9 per cent, its lowest level for 23 years.

Both figures were cited as supporting the need for a rise, on the grounds that the growth rate needed to be restrained and such low unemployment would lead to wage rises.