Stocks surge after Fed pledges broad economic support

Stocks bolted higher Tuesday after the Federal Reserve slashed interest rates and pledged broad support to revive the troubled economy.

The Dow Jones industrials surged nearly 360 points, or 4.2%, and broader indexes jumped more than 5% after the central bank said it would use “all available tools” to jump-start the economy. The Fed also set its target for the rate at which banks lend to one another to a range of zero to 0.25%, the lowest level on record.

Battered financial stocks led the stock market’s advance.

Demand for long-term government bonds increased, pushing their yields to record lows, after the Fed said it was considering buying such securities. The central bank also said it was prepared to expand its recently initiated purchases of debt issued by Fannie Mae and Freddie Mac.

The Fed’s announcement appeared to dampen concerns that policymakers were running low on tools to boost the economy by cutting interest rates.

“Today was a reminder that the Fed was on the case,” Jim McDonald, director of equity research at Northern Trust in Chicago, said Tuesday. “It was a reaffirmation of their willingness to be very aggressive.”

The Fed’s move to lower the target level for its key rate from 1% to a range of zero to 0.25% was an acknowledgment that the actual rate, paid by banks on overnight loans from other banks, already had been well below the 1% target level.

Many analysts had expected the Fed would cut the target rate only a half-point.

“In some senses the whole point of this meeting was to say, ‘Quit watching interest rates. Watch the other things that we can and will do,’ ” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

The Dow rose 359.61 points to 8,924.14 after having been up about 100 in subdued trading before the Fed’s announcement.

The Standard & Poor’s 500 index advanced 44.61 points, or 5.1%, to 913.18, and the Nasdaq composite index rose 81.55 points, or 5.4%, to 1,589.89.

The Russell 2,000 index of smaller stocks shot up 6.7%.

The number of stocks advancing outnumbered those declining 5 to 1 on the New York Stock Exchange.

Since Nov. 20, the Dow is up 18%, and the S&P; 500 and the Nasdaq are up 21%.

The yield on the benchmark 10-year Treasury note fell to 2.36% on Tuesday from 2.53% late Monday. The yield on the 30-year bond fell to 2.87% from 3%.

The dollar was mostly lower against other major currencies, particularly the euro. Gold prices rose.

Oil futures fell 91 cents to $43.60 a barrel on the New York Mercantile Exchange.

Shares of financial service companies, which could benefit directly from the Fed’s moves Tuesday, surged. An index of financial stocks in the S&P; 500 climbed 11%.

Morgan Stanley soared 18%, JPMorgan Chase gained 13%, Wells Fargo rose 14%, Citigroup increased 11% and Bank of America advanced 7%.

Goldman Sachs Group climbed 14% despite reporting a $2.29-billion loss, its first quarterly loss since the firm went public in 1999.