IMPACT OF THE RATE CUT : Propelled by Fed Action, Dow Zips to Record 4,664 : Markets: Other key stock barometers also climb on the news. Treasury bond yields fall back.

Stocks rocketed to record highs and bond yields sank Thursday after the Federal Reserve Board cut interest rates for the first time in nearly three years in an effort to revive a sluggish economy.

The Dow Jones industrial average climbed 48.77 points on the news, closing at an all-time record of 4,664.

“It was a buying panic,” said William Bayer, vice president at PTI Securities.

In the bond market, the yield on the main 30-year Treasury bond fell 11 basis points to 6.49% from Wednesday’s 6.60%, driving its price up 1 9/16 points, or $15.63 per $1,000 invested, after the Fed lowered the fed funds rate, the rate banks charge each other for overnight money, to 5.75%.

The rate cut, the first since September, 1992, came at the end of a two-day meeting of the Fed’s policy-making Federal Open Market Committee.

Other popular stock market barometers joined the Dow in closing at unprecedented levels.

The New York Stock Exchange composite index climbed 3.22 points to 296.43, handily surpassing the high of 294.93 reached on June 22. Standard & Poor’s 500 surged 6.73 points to 553.99, also beating its June 22 mark of 551.07.

Investors snapped up a broad range of equities and the Nasdaq shattered the prior day’s closing high by soaring 11.11 points to 952.93.

Gainers outdistanced losers by a large margin, with a late New York Stock Exchange tally showing 1,686 issues up, 676 down and 650 unchanged. Volume also swelled as investors flocked to equities, with 420.51 million shares changing hands, up from 357.87 on Wednesday.

The stunning rallies in stocks and bonds surprised some analysts, who said investors must feel further rate cuts are coming in the near future.

“The reaction is far greater in the markets than I would have expected,” said Hugh Johnson, chief investment officer of First Albany Corp. “The stock market is sending a message that more rate cuts will follow.”

Johnson said the Fed seems to have given the markets a prescription for continuing health.

“You’ve got to take your hat off to the Fed,” he said. “When it comes to the markets, they seem to be hitting one bull’s-eye after another.”

Although the financial markets responded enthusiastically to the Fed’s action, some analysts cautioned that the rate cut was conservative and might not cause business and consumer lending charges to change immediately.

But several major American and Canadian banks quickly cut their prime lending rates, an indication that rates throughout the economy eventually will be affected by the Fed’s move.

Optimists suggested that the Fed might follow Thursday’s limited cut with a gradual easing in credit conditions to spur spending. Hopes for lower rates have been one of the main fuels behind the stock market’s heady advance this year.

A report released Thursday morning was consistent with recent evidence of an economic slowdown.

The Commerce Department’s index of leading economic indicators, the government’s main forecasting gauge of future economic activity, fell 0.2% in May. It was the fourth straight monthly decline, the first time that has happened since the last recession in 1990.

Among Thursday’s market highlights:

Retailers’ stocks attracted attention Thursday as stores reported their June sales.

* Ann Taylor fell 3 1/8 to 20 1/2 after the company forecast a second-quarter loss after weak June same-store sales.

* Gap fell 2 1/4 to 34 1/4 as analysts cut estimates after the company said June same-store sales fell 4%.

* Technology issues were among the stocks leading the market higher amid expectations that earnings of computer and related companies will benefit from a reviving economy. Micron Technology ended up 2 3/8 to 55, Motorola added 1 1/4 to 70 1/4, IBM rose 2 1/8 to 98 7/8 and Microsoft gained 2 1/16 to 92 3/4.

* Gibson Greetings rose 2 to 14 1/2 after the greeting card and wrapping paper company said it is exploring the possibility of a sale after receiving an expression of interest from another firm.

* United Health fell 1 1/8 to 40 1/2, with analysts citing weakness in the health care sector.

* Legato Systems soared 8 to 27 in its first day of trading.

Overseas, Mexican stocks soared for a second straight session, with the Bolsa index closing up 96.67 points, or 4.19%, at 2,402.97.

Tokyo’s 225-share Nikkei average shot up 426.45 points, or 2.88%, to close at 15,256.89.

* FED EASES

Central bank cuts key rate. A1.

* CLOSELY WATCHED

Rate-sensitive consumers will keenly feel impact of cut. A1

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The Fed Loosens Its Grip ...

The Federal Reserve Board voted Thursday to trim its targeted “federal funds” rate--the overnight loan rate among banks--to 5.75% from 6%, the first official interest rate cut in three years. The Fed left its other benchmark rate, the discount rate, unchanged.

Federal funds target rate (end of each quarter and latest)

Thursday: 5.75%

Federal discount rate (end of each quarter)

2nd quarter: 5.25%

Short- and long-term market interest rates have been falling since January, reflecting the weak economy and expectations that the Fed would have to ease credit.

Three-month Treasury bill yield (month-end data and latest)

Thursday: 5.54%

30-year fixed mortgage rate (month-end data and latest)

Thursday: 7.63%

Sources: DRI. Researched by JENNIFER OLDHAM / Los Angeles Times