Wall Street surges on rate cut

Trading surged on news of the fourth interest rate cut

By BBC News Online's North America business reporter David Schepp

The US Federal Reserve's surprise decision on Wednesday to cut interest rates sparked a spectacular rally on Wall Street, led by beleaguered technology stocks.

The Dow Jones Industrial Average, which includes 30 of America's biggest companies, gained more than 380 points to close Wednesday at 10616.

The technology-laden Nasdaq, the focus of investor-selling in recent months, pushed over the 2,000 mark for the first time since mid-March, gaining more than 155 points, or a massive 8%.

The Fed's decision to cut half a percentage point off interest rates to 4.5% spread, took markets completely by surprise.

Within individual stocks, brokerage-firm Merrill Lynch added on 5% despite reporting a drop in profits, while blue-chip stock Citigroup also gained 5%.

Hewlett-Packard advanced 10% on news that it was cutting 4,700 jobs.

Tech stock rally

Investors saw good news even as companies reported lower earnings.

With reduced profits already built into the prices of many tech stocks, investors watched for signals that corporations see a stronger US economy by year-end.

"Intel saying that they see signs of stability in the PC market gave a real added boost to the tech-heavy Nasdaq," said Peter Coolidge, head trader at Brean Murray.

US stocks were already heading higher in early Wednesday trading - bolstered by positive news from US companies.

But the market moved sharply higher on news of the rate cut the Fed announced at 1100 EST.

Larry Wachtel of Prudential Securities was "very surprised" by the central bank announcement. Mr Wachtel said that Fed officials gave every indication that they intended to wait until the central bank's May 15 meeting.

"Wall Street had kind of given up on an inter-meeting move," Mr Wachtel said. "This came as a vast surprise."

Element of surprise

It was the unexpected nature of the rate cut that had Wall Street buzzing all day.

"That's the element of surprise in an already excitable market, in a day when the market was already having a strong day," said Barry Hyman, analyst at Ehrenkrantz King & Nussbaum.

"Nevertheless, lower interest rates are going to help the economy. This was a surprise move in terms of the day and timing."

The Standard & Poor's 500, a broad measure of US stocks, also rallied, advancing 47 points to 1,238.

This "gives investors additional reason to be optimistic," said Sam Stovall at Standard & Poor's. "In the past, whenever the Fed has taken an aggressive easing stance, that six to 12 months later both the S&P 500 and the Nasdaq have typically shown that they lower rates."

This is the fourth half-point move by the central bank this year as it tries to bolster the US economy in the midst of a downturn.