A sudden decision by the Federal Reserve caused the market to soar with stocks closing more than 4% higher on the day as credit spreads tightened aggressively.

The Fed announced a cut from 100 basis points to 50 bps in the loan rate on its bilateral FX (foreign exchange) swap lines with other major central banks with the focus clearly on the European Central Bank (ECB).

These steps should help make dollar liquidity auctions in Europe more effective in getting dollar liquidity to European banks, and likely arrest the relentless upward pressure on 3-month dollar LIBOR that European banks' dollar funding problems have been driving.

In plain English, the Fed was likely looking to prevent aggressive selling of U.S. dollar (USD) denominated assets by European banks by providing longer term USD funding for these assets.

The widespread market rumor was that a large European bank was on the verge of collapse, spurring the sudden liquidity injection.

Players will be looking to see where tomorrow's LIBOR settles and whether or not the ECB will extend their lines out to 2 years or longer.

Broad European market concerns are still there; they have just been sidelined for now by the intervention.

CDS (credit default swap) spreads gapped tighter, outperforming cash bonds, as a plethora of levered players jumped into the marketplace to buy risk on domestic and Yankee (foreign issuers denominated in USD) banks.

Liquidity remains thin with month-end here and year-end right around the corner.

That there were only a few new corporate bond issues in the market on a day where stocks were more than 4% higher demonstrates the light volumes with more investors not taking new positions for the year.

An interesting tit-for-tat exchange continues between the Iranians and the English, with oil trading above $100 a barrel.

Players will be looking to employment figures for the remainder of the week.