The Dow Jones Industrial Average surged more than 300 points on Tuesday after the announcement that the Federal Reserve cut its benchmark interest rate a larger-than- expected half a percentage point.
The unanimous decision by the central bank's Federal Open Market Committee took the overnight federal funds rate down to 4. 75 percent, its lowest level since May of last year.
The Fed also lowered the discount rate it charges for direct loans to banks by a half-point to 5.25 percent.
Many investors had hoped for a large rate cut, most were betting on a smaller quarter percentage cut in the federal funds rate.
It was the first cut in the interbank federal funds rate -- the Fed's main tool to influence the economy -- since June 2003 and the first half-point cut since November 2002.
The decision and the wording of its accompanying economic assessment gave a strong push to the market that plunged during August amid fears that the credit market problems would send the economy toward recession.
Ahead of the Fed's much-anticipated move, the Labor Department reported wholesale prices fell 1.4 percent in August, led by falling food and energy prices. However, the core producer-price index climbed a greater than expected 0.2 percent.
The producer-price index report, however, may not have a great bearing on deliberations by the Fed, which focuses on consumer, rather than wholesale, prices.
The Dow Jones Industrial Average responded positively to Fed's decision and skyrocketed after it was announced.
At close, the Dow surged 335.97, or 2.51 percent, to 13,739.39. The blue-chip index is now only about 1.9 percent below its record close of 14,000.41 reached in mid-July.
The Dow's rise marked its largest one-day jump since Oct. 15, 2002, and its biggest percent rise since April 2, 2003.
The Standard & Poor's 500 index rose 43.13, or 2.92 percent, to 1,519.78, while the Nasdaq composite index gained 70.00, or 2.71 percent, to 2,651.66.
Source: Xinhua
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