US stocks rallied the most in four years after the Federal Reserve unexpectedly cut its discount rate to keep credit market losses from sapping economic growth.
The Fed’s decision to lower the rate by 0.5 percentage point to 5.75 per cent also lifted Europe’s Dow Jones Stoxx 600 Index to its steepest advance since April 2003. Citigroup Inc, the largest US bank, and Lehman Brothers Holdings Inc, the biggest US underwriter of mortgage-backed securities, led gains in financial shares.
“The Fed was going to have to do something, and this seems to be a good step,” said Malcolm Polley, who oversees $1 billion at Stewart Capital Advisors in Pittsburgh. “I'm hopeful that this will be enough.”
The Standard & Poor’s 500 Index surged 29.07, or 2.1 per cent, to 1440.34 as of 9:36 a.m. in New York. The Dow Jones Industrial Average climbed 291.18, or 2.3 per cent, to 13,136.96. The Nasdaq Composite Index rose 71.18, or 2.9 per cent, to 2522.25.
Citigroup gained $2.04 to $49.59. Lehman increased $4.76 to $59.51. In Europe, Nokia Oyj rose 4.7 per cent to 22 euros. Deutsche Bank climbed 5.6 per cent to 96.81 euros.
Europe’s Dow Jones Stoxx 600 Index rallied 3.5 per cent to 364.78 after falling as much as one per cent earlier. The yield on the two-year US Treasury note rose three basis points to 4.72 as investors fled the safe haven of government debt.