Dow Hits Record as Germany Cuts Rates : Europe: Bundesbank’s action lifts the dollar and sends stocks soaring across the Continent and in the United States.

Germany’s central bank, in a move that could boost economic growth throughout the industrial world and relieve pressure on Europe’s tumultuous currency markets, reduced two key interest rates Thursday for the first time in five months.

The action was triggered by a combination of Germany’s rapidly deteriorating economy and Europe’s disintegrating system of fixed exchange rates between currencies.

Its effects were immediately felt in the United States, where the dollar rose sharply in value against the German mark, and the Dow Jones industrial average closed at a record high.

The action by the Bundesbank, as Germany’s central bank is known, could allow interest rates to fall in all European countries whose currency values are tied to that of the German mark.

Within minutes of the Bundesbank’s action, the Dutch, Belgian and Austrian central banks lowered interest rates.

Lower rates usually translate into more economic growth, and that would be good news not only for Europe but also for American companies that export to Europe.

Technically, the Bundesbank reduced the two interest rates that effectively act as the upper and lower limits for market-driven short-term rates in Germany. It trimmed the Lombard rate, its emergency lending rate to commercial banks that cannot find money elsewhere, from 9.5% to 9%. The discount rate, the lowest rate offered to commercial banks, was cut from 8.25% to 8%.

Even at their new levels, short-term interest rates remain 5 to 6 percentage points higher in Germany than in the United States and Japan, which also cut interest rates Thursday. The Bundesbank has kept interest rates high to control the inflation that was fueled by reunification with the former East Germany.

But those high rates exacted a toll on German economic output, which has been declining since the middle of last year. And by attracting massive flows of investment funds to Germany in search of high rates of return, they boosted the value of the German mark.

The dollar fell to record lows against the mark last year. But most of Western Europe’s currencies are linked to the mark in a system of fixed exchange rates designed to assure international investors that their profits will not be eaten away by currency fluctuations.

As a consequence, many Western European countries have had to maintain interest rates at economically stifling heights.

The Bundesbank, reluctant in the past to admit that high German interest rates were responsible for the European currency crisis, acknowledged Thursday that “the measures taken are likely to help reduce tensions in the foreign exchange markets.”

Jouni Kokka, an international economist with S. G. Warburg Securities in London, warned, “The exchange rate mechanism isn’t out of the woods yet.”

Within Germany, analysts asserted that the timing of Thursday’s move owed more to recent domestic economic developments than to concerns about Europe’s currency markets. A report, made public by the Federal Economics Ministry only a few hours before the Bundesbank announcement, revealed a drop of 3.5% in incoming orders for German industry in December, with the decline in the crucial investment goods industry nearly twice as steep.

Havemann reported from Brussels and Marshall from Berlin.