The Dow Jones Industrial index had its largest one day jump in two years on Wednesday as news from the Eurozone spread that central banks were easing loan conditions in order to provide liquidity to struggling financial institutions. The Dow closed at 12,045 which was nearly 500 points higher than its 11,555 close at the end of Tuesday’s session.

The S&P 500 and NASDAQ Composite enjoyed similar gains during Wednesday’s session. JPMorgan Chase & Co. (JPM) shares sprang upwards $2.41 to $30.97 per share; an increase of 8.4 percent while Bank of America Corp. (BAC) shares rose 6.5% to $5.41 by the end of Wednesday’s trading session.

Much Needed Optimism

Markets reacted positively on news that central banks from across the globe were reducing the cost of borrowing US Dollars. China’s government also eased collateral amounts that banks must keep on hand as reserves for the first time in three years. James McDonald of Northern Trust Corp. told Bloomberg.com, “They have put some more lubricant in the engine. Stocks have been under considerable pressure over the fears that policy makers were not going to act. While this specific action isn’t a final solution, it does indicate their willingness to prevent significant financial dislocation.”

Burt White of LPL Financial Corp. was quoted in that same Bloomberg.com article stating, “The economic backdrop continues to improve. Then, you mix in the policy action across the globe to ease liquidity concerns. I don’t think there’s any doubt that the U.S. economy is going to avoid a recession.

Profitable Day for Some Investors

For those who have IRAs (What is an IRA?) which are heavily invested in financial stocks, Wednesday’s trading session turned out to be one of the most positive upward swings percentage-wise in years. Many investors seek ways to improve 401(k) results, and one method of doing so is having one’s finger on the global market pulse in order to anticipate major swings.

Credit Markets Unfreeze

With the latest action taken by central banks along with future pledged support, investors appear to have a renewed reason for optimism as concerns of sovereign debt default have temporarily been removed from the spotlight. Financial institutions that are currently struggling and seeking methods to raise capital could receive an enormous boost due to Wednesday’s action by the International Monetary Fund, Federal Reserve and other central banks. The influx of capital comes at a time when many banks, especially in the Eurozone, are finding it more difficult to assuage investor fears of junk debt associated with exposure to sovereign bonds.

Problems Still Persist

Despite Wednesday’s action by the Fed and subsequent market response, there are still a variety of issues facing European Union nations. Greece is currently in the process of implementing additional austerity measures aimed at shoring up the country’s balance sheet, and government employee layoffs along with drastic cuts to expenditures remain a issue if a new round of loans is to be approved.

Worries related to Greek sovereign debt have spread to Italy, Spain and other EU countries, forcing major shakeups in the political structure of those nations along with skyrocketing yield percentages on sovereign debt. Some Eurozone nations are paying in excess of 7 percent interest in order to entice investors to purchase bonds – compared to U.S. Treasury notes that are currently being gobbled up in exchange for an annual payment of less than 2 percent.

Will Infusion of Liquidity Result in Inflation?

Although the actions taken by central banks on Wednesday were well received by markets around the world, some fear that boosting the availability of U.S. Dollars will ultimately result in a weakening of the currency and inflation. Depending on the amount of fiat currency that is pumped into markets, the Consumer Price Index could be on its way up in upcoming months.

However, others argue that the risk of a debt default by a major European nation is too great to ignore, and that central banks should take whatever means necessary to prevent that from happening. IRA.com will continue reporting on the latest financial news as it occurs while monitoring market trends.