US stocks rally on Fed's surprise cut

US stocks rallied after the Federal Reserve unexpectedly cut its discount rate and said it stands ready to ``act as needed'' to keep credit market losses from sapping economic growth.

The Fed's decision to lower the rate at which it makes direct loans to banks by 0.5 percentage point also lifted Europe's Dow Jones Stoxx 600 Index to its steepest advance in a year.

Countrywide Financial Corp, the biggest US mortgage lender, jumped the most in seven years after falling the last six days. Lehman Brothers Holdings Inc. and Morgan Stanley also paced gains in financial shares.

``It's just a brilliant move in letting the markets know where liquidity can be found and at what cost,'' said Tim Hartzell, who helps manage about $2 billion as chief market strategist at Kanaly Trust Co. in Houston. ``It brings the banks back to the table.''

The Standard & Poor's 500 Index surged 27.9, or 2 per cent, to 1439.17 as of 10:16 a.m. in New York. The Dow Jones Industrial Average climbed 192, or 1.5 per cent, to 13,037.78. The Nasdaq Composite Index rose 43.47, or 1.8 per cent, to 2494.54.

Europe's Dow Jones Stoxx 600 Index rallied 2.5 per cent to 361.15 after falling as much as 1 percent earlier. The yield on the two-year US Treasury note rose 3 basis points to 4.72 per cent as investors fled the safe haven of government debt.

``Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward,'' the Federal Open Market Committee said in a statement following an unscheduled meeting. ``The downside risks have increased appreciably.''

Half-Point Cut
The FOMC reduced the discount rate to 5.75 percent, the first time it has cut borrowing costs between scheduled meetings since 2001. Policy makers left the overnight federal funds target rate unchanged at 5.25 percent.

In the statement, the committee said it is ``prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.''

``It shows a lot of creativity on Bernanke's part. He has a lot more options than people think,'' said Bartley Barnett, head of listed trading at Morgan Keegan Inc. in Memphis, Tennessee. ``It shows the Fed is being supportive and paying attention.''

Countrywide upgraded
Countrywide surged $1.72, or 9.1 percent, to $20.67 for the steepest increase among companies in the S&P 500. The biggest US mortgage lender was upgraded to "neutral'' from "sell'' at Banc of America Securities LLC. Analysts including Robert Lacoursiere said the possibility of a ``liquidity-induced distressed sale'' is unlikely.

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Australia's central bank bought the nation's currency for the first time in six years to stem the steepest drop since it was allowed to trade freely in 1983.

The Bank of Japan added 1.2 trillion yen to the money market today to stop yen from strengthening. A strong yen was seen hurting Japanese exports which led to a steep fall in Nikkei

The dollar was at 114.59 yen, from 113.88 yen. The euro was at $1.3517 from $1.3416 at Thursday's close. The pound was at $1.9914 compared with $1.9826. The dollar was at 1.2057 Swiss francs from 1.2168 francs.