Fed rate cut propels stocks rally

NEW YORK – Stocks rallied today as the Federal Reserve slashed its key interest rate and two brokerage firms posted better-than-expected earnings.

The Dow Jones industrial average initially jumped more than 300 points on anticipation that the Fed would cut its benchmark by a full percentage point, then pulled back after the central bank announced a reduction of three-quarters of a point.

With 75 minutes left in the trading day, the Dow was up 196.37 points, or 1.6%, at 12,168.62. The Standard & Poor’s 500 index had gained 2.1%, while the Nasdaq composite index was up 2.1%.

Profits fell at both Lehman Bros. Holdings and Goldman Sachs Group, but investors breathed a collective sigh of relief that the results weren’t worse and sent shares of both companies up. A day after leading the market lower, other financial stocks also rebounded.

Lehman’s stock jumped $10.10, or 32%, to $41.85 after being pounded for the last two days on worries that the bond-trading firm could face the type of credit squeeze that forced Bear Stearns Cos. into the arms of JPMorgan Chase & Co. Lehman’s first-quarter earnings fell 57% and its revenue dipped 31%, but both were higher than estimates.

Goldman’s earnings fell by more than half as the firm recorded $2 billion in write-downs caused by losses in mortgage securities and other credit areas. Nevertheless, Goldman easily beat analysts estimates and its stock rose $18.37, or 12%, to $169.39.

Other financials jumped as bargain hunters tried to take advantage of the recent panic-driven sell-off and short sellers, who profit from falling stocks, unwound their bets when the market started rising.

walter.hamilton@latimes.com