Dow Regains 43.61; Nikkei Soars Today : Securities: A broad-based rally greets the Federal Reserve’s move to ease interest rates. The action comes after a new government report showed inflation in check.

The U.S. stock market rebounded from two days of steep losses Thursday after the Federal Reserve cut a key interest rate, calming investors’ worries about a sharp dive in Japanese stocks and the lumbering U.S. economic recovery.

The Dow Jones industrial average jumped 43.61 points, or 1.4%, to 3,224.96.

Early today, the beleaguered Tokyo stock market followed the Dow’s lead, as the Nikkei index rocketed 834.21 points to 17,432.36 by midday after falling a stunning 1,838.22 points from Tuesday through Thursday.

Meanwhile, Hong Kong stocks followed Tokyo higher early today, as the Hang Seng index shot up 154.10 points, or 3.3%, to 4,883.49 in morning trading.

In the U.S., buyers roared back into the market after the Fed surprised analysts late in the morning by adding money to the nation’s banking system.

The action was interpreted as meaning that the central bank had cut its target for the federal funds rate, the interest banks charge each other for short-term loans, from 4% to 3.75%. The Fed doesn’t officially announce changes in the rate, but a dramatic drop in other short-term rates on Thursday all but confirmed the move.

Investors, who have been conditioned to view falling rates as automatically positive for stocks, sent 13 stocks higher for every 5 that fell on the New York Stock Exchange. Volume totaled 232.26 million shares, down from 249.28 million Wednesday.

The Dow had lost 94 points over the previous two sessions in a faint echo of the Tokyo market’s collapse. But Thursday, despite another 577.38-point drop in the Nikkei, U.S. stocks shook off worries about Japan’s looming recession and concentrated on the good news of the interest rate cut.

“Things got a bit overdone in the past few days,” said analyst Jim Benning at BT Brokerage. “This will help the psychology a little bit.”

The Fed acted after the Labor Department reported that producer prices rose a slim 0.2% last month, indicating that the slow economic recovery isn’t sparking a resurgence in inflation.

“The domestic environment certainly allowed for a move by the Federal Reserve,” said Hugh Johnson, chief investment officer at First Albany Co.

Many analysts speculated that the Fed will cut interest rates further, perhaps lowering the discount rate, which is what it charges banks for emergency loans.

Meanwhile, investors saw another sign that the economy is indeed recovering, if at a snail’s pace. The government said new claims for jobless benefits in the week ended March 28 totaled 432,000, a drop of 24,000 from the week before.

Among the market highlights:

* Smaller stocks, which have been badly beaten-up in recent weeks, reacted strongly to the Fed’s move. The NASDAQ composite index of smaller issues soared 13.07 points, or 2.3%, to 586.75, pushed up by a resurgence of depressed biotech stocks.

In that group, Amgen gained 2 5/8 to 59 7/8 after an analyst at brokerage Oppenheimer & Co. raised 1992 earnings estimates slightly. Other biotech winners included Immunex, up 2 1/2 to 31; Gensia, up 5 1/8 to 38 1/4, and Alza, up 2 1/4 to 42 5/8.

* Leading blue chip stocks higher were GE, up 1 7/8 to 74 3/4; International Paper, up 1 7/8 to 70 7/8; Merck, up 3 5/8 to 150 1/8; J. P. Morgan, up 3 3/8 to 55 7/8, and Procter & Gamble, up 2 1/8 to 98 3/4.

* Financial stocks reacted warmly to the drop in interest rates. BankAmerica jumped 2 to 40 7/8, First Interstate gained 1 3/8 to 35 3/4, and mortgage financier Countrywide Credit zoomed 2 1/8 to 31 1/2.

* Retailers were mostly higher after reporting surprisingly good March sales--another sign of economic recovery. Dayton Hudson gained 2 5/8 to 62 5/8, Kmart jumped 2 1/2 to 52, Penney rose 2 5/8 to 65, and May added 2 1/8 to 56 7/8. However, Limited fell 2 to 24 1/4 after reporting disappointing sales.

* In the tech sector, most stocks were up sharply, continuing their Thursday rally. Apple rose 1 3/8 to 57 1/4, Exabyte added 2 3/8 to 37 3/4, and Microsoft gained 2 3/4 to 120.

But Southland-based FileNet slumped 3 1/8 to 26 5/8 after projecting a 25% gain in first-quarter earnings, but a drop in its order backlog. Also, Digital Equipment plunged 5 1/4 to 48 1/4 after reporting a large quarterly loss.

In other overseas markets, London stocks staged an impressive rally on Britain’s election day amid hopes that the ruling Conservatives would retain power. The Financial Times 100-share average soared 43.2 points to 2,436.2.

In Frankfurt, shares fought the downward pull of Tokyo and recovered from an early drop to close flat. The DAX average finished at 1,720.25, up just 0.24 point.

Credit

Short-term interest rates plummeted and long-term rates also fell back after the Federal Reserve’s move to ease credit again.

The discount rate on three-month Treasury bills tumbled to 3.66% from 3.84% on Wednesday.

Meanwhile, the price of the Treasury’s 30-year bond rose 17/32 point, or $5.31 per $1,000. Its yield fell to 7.86% from 7.91% Wednesday.

The Fed’s surprise action helped traders shrug off lingering disappointment over poor demand at the Treasury’s auction of seven-year notes on Wednesday.

Part of the dramatic drop in T-bill rates on Thursday seemed to stem from belief that the Fed is poised for another rate cut soon, to ensure that the economy stays on track.

Currency

The dollar slipped against other currencies after the Fed pushed interest rates lower.

Falling U.S. interest rates usually depress the dollar. Reduced rates cut returns on dollar-based holdings and thus tend to erode demand for the U.S. currency.

After ending unchanged in Tokyo at 132.70 Japanese yen, the dollar sank to 132.05 yen in New York after the Fed rate cut.

The dollar also slipped to 1.617 German marks in New York from 1.627 Wednesday.

Commodities

Oil prices retreated after sharp run-ups that had taken crude to its high point for the year.

Light, sweet crude for delivery in May settled at $20.31 per barrel, down 31 cents on the New York Mercantile Exchange.

Traders responded to indications that the U.S. supply of oil and petroleum products had not fallen as far as believed last week, as well as stories circulating through the exchange that tensions between Libya and the West may be easing.

Meanwhile, precious metals futures posted moderate gains after the Fed’s rate cut--which some traders view as ultimately inflationary. On New York’s Comex, gold for April delivery rose $1.60 to $339.50 an ounce, and May silver rose 2.5 cents to $4.11.

Platinum for April delivery rose $2.80 to $344.90 an ounce on the New York Merc.