NEW YORK - US STOCKS soared on Tuesday as investors cheered a surprise Federal Reserve decision to cut its key rate to near zero and its pledge of more steps to revive economic activity.
The Dow Jones Industrial Average leapt 359.61 points (4.20 per ent) to close at 8,924.14.
The Nasdaq jumped 81.55 points (5.41 per cent) to 1,589.89 and the Standard & Poor's 500 broad-market index vaulted 44.61 points (5.14 per cent) to 913.18.
Gains accelerated after the Fed slashed its base lending rate to virtually zero while pledging to take further actions to get credit flowing and revive an economy in the worst recession in decades.
The central bank's Federal Open Market Committee lowered its target federal funds rate from 1.0 per cent, already at a historic low, to a range of zero to 0.25 per cent.
The move was more aggressive than most investors had anticipated, and prompted a drop in the dollar while stocks and bonds rallied.
'Today's Fed actions have been forceful and effective,' said Mr Brian Bethune, economist at IHS Global Insight.
'They are fully congruent with chairman Ben Bernanke's pronouncement in October that the Fed would not 'stand down' until the battle against the current economic and credit crisis is won - indeed, this is exactly the decisive leadership and action that the American public is looking for to pull the economy out of its current tailspin.'
Mr Ryan Sweet at Economy.com said the statement reassured the markets.
'Most importantly, the statement addressed concerns that the central bank is running out of ammunition,' Sweet said.
'The Fed outlined new and possible unconventional actions it can take to address strains in financial markets.' Mr Joel Naroff at Naroff Economic Advisors concurred.
'Basically, it appears that the Fed is going to show the private sector what is the true level of risk that exists in all the markets that no longer operate normally,' he said.
'After a while, the success (hopefully) of the Fed's actions will prove to the private sector that there are reasonable risks that can be taken. How long that will take is anyone's guess, but by keeping credit flowing, the Fed will be buying time for banks to heal and the economy to regain some footing.'
Traders looked past an unprecedented US$2.12 billion (S$3.09 billion) loss by Wall Street icon Goldman Sachs as well as a plunge in US housing starts to a new record low and a record steep fall in consumer prices that highlighted fears about deflation.
The bond market extended its rally, pushing yields on long-term Treasuries to new historic lows. The 10-year bond was yielding 2.363 per cent compared with 2.533 per cent Monday and that on the 30-year bond tumbled to 2.874 per cent from 3.001 per cent. Bond yields and prices move in opposite directions.
Among key stocks, Goldman Sachs rallied 14.35 per cent to US$76.00, as the investment giant's first quarterly loss was less than feared by some traders. Rival bank Morgan Stanley, set to unveil results on Wednesday, jumped 18.26 per cent to US$16.13 .
General Electric advanced 5.74 per cent to 17.92 dollars after the US conglomerate won a US$3 billion contract to provide power generation equipment to Iraq. The company also reaffirmed its outlook but said it would stop publishing quarterly guidance. -- AFP
