Dow Climbs 33.41 as Fed Drops Rate

The stock market spiked higher today following a surprise announcement that the Federal Reserve was cutting a critical lending rate.

Prices languished until the final hour of trading and then soared on news that the Fed was lowering the discount rate by 0.5% to 6.5%.

The Dow Jones average of 30 industrials rose 33.41 points to 2,626.73.

Gaining issues outnumbered declining ones by about 5 to 3 on the New York Stock Exchange, with 972 up, 585 down and 468 unchanged.

Big Board volume totaled 176.46 million shares, against 118.56 million in the previous session.

The NYSE’s composite index rose 1.97 to 180.19. At the American Stock Exchange, the market value index settled at 305.03, up 1.04.

The change in the discount rate, the interest the Fed charges on loans to banks and other financial institutions, marked the first time the rate has moved lower since August, 1986.

Although economists had been calling for an easing of credit to bolster the stumbling economy, the announcement was a surprise because it came while the financial markets were still open.

Analysts lauded the Fed action. The Fed “has got to get this economy turned around,” said Gene Jay Seagle, a vice president at Gruntal Financial Inc. He likened the move to lighting a fuse that would allow money to flow into the stock market.

“This will put a cap on what was developing into a pessimistic attitude toward stocks,” he said.

But other market watchers were more skeptical over how much impact a half a percentage point cut can actually make. “The immediate response in the economy will be long delayed, and we’re going to have to slug through some very difficult quarters in ‘91,” said Michael Metz, a vice president at Oppenheimer & Co.

“This does not signal the end of the recession by any means,” he added.

Traders had hoped that today’s Labor Department report showing the Consumer Price Index advanced a moderate 0.3% in November would give the Fed impetus to ease credit.