Meridian Star

National/World News

December 16, 2008

4:56 p.m. US-Closing Stocks

NEW YORK (AP) — A surprised Wall Street bolted higher Tuesday after the Federal Reserve's historic decision to further slash interest rates and pledge broad support to revive the troubled economy.

The Dow Jones industrials surged nearly 360 points, or 4.2 percent, and broader indexes jumped more than 5 percent after the central bank said it will use "all available tools" to jump-start the economy. It also set its target for the rate at which banks lend to each other to a range of zero to 0.25 percent, the lowest level on record.

Demand for long-term government bonds increased and pushed yields to record lows.

The promise of further government action and a Swiss-army-knife approach for mending the economy damped concerns that policymakers were running low on tools to fan the economy by further lowering interest rates.

The idea that the Fed will likely proceed with plans to snap up government and mortgage debt made it easier for investors to place bets that the central bank will do what is necessary to help bring an end to the longest recession in a quarter-century.

"Today was a reminder that the Fed was on the case," said Jim McDonald, director of equity research at Northern Trust in Chicago. "It was a reaffirmation of their willingness to be very aggressive."

"What we heard today was not revolutionarily different but it was a reminder that they are committed to using their balance sheet to the fullest extent to repair the financial markets and stimulate the economy."

The Fed's unprecedented move to lower its fed funds target rate to a range of zero to 0.25 percent rather than a fixed point was a surprise. The move is an acknowledgment that rates in the marketplace had been well below the Fed's 1 percent target, which it set at its previous meeting on Oct. 29. The central bank also cut the lending rate for loans directly to banks.

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