US stocks surge to five year high after Fed rate cut

Wednesday, March 19, 2008 | | |

ASHINGTON: As the US central bank hoping to avert a recession, cut short-term interests by an additional three-quarters of a point, to 2.25 percent, American stocks rocketed to their biggest gains in almost five and a half years.

With the move on Tuesday, the Federal Reserve as the central bank is called, has lowered interest rates by a full three points since September, bringing it to the lowest point since late 2004.

Economists had been expecting a cut of one-half to one point, because the nation's economy has sagged so badly in response to the housing sector's meltdown, and the growing fallout being felt in other sectors.

Additional confidence boosters came Tuesday, when two investment banking giants, Goldman Sachs and Lehman Bros., posted better-than-expected earnings, easing fears that another big Wall Street firm would suffer a run on the bank and fail like Bear Stearns did.

A day after a feared market meltdown, the upbeat news fuelled a relief rally, the Dow Jones industrial average jumped 420.41 points, or 3.51 percent, to 12,392.66. It was the Dow's fourth-biggest point gain ever.

The Standard & Poor's 500 index enjoyed its biggest percentage gain since October 2002, soaring 54.14 points, or 4.24 percent, to 1330.74. The Nasdaq composite rallied 91.25 points, or 4.19 percent, to 2268.26. The rally helped the Dow and S&P 500 trim their losses from the October highs to 12.5 percent and 14.9 percent.

In an accompanying statement, the Fed noted the weakness throughout the economy and the disarray in the nation's financial markets in making it clear that the bigger threat to the economy is from weakness, rather than inflationary pressures.