Fed cuts rates by 75 basis points & Dow Jones surged 420 points

Battling Wall Street's biggest crisis since the Depression, the Federal Reserve slashed its key lending rate by 75 basis points Tuesday to jump-start the sagging economy and boost confidence in the U.S. financial system.

The Dow Jones Industrial Average ended the day with a gain of 420 points, the biggest one-day point gain in more than five years, after earnings from Goldman Sachs and Lehman Brothers prove better than expected and a rate cut by the Federal Reserve.

But there's more reason for the bulls to cheer than the magnitude of the day's point gain. Tuesday's action also was strong enough to trigger a bullish technical event known as a "Double Nine-To-One" signal.

This indicator is based on the volume of all NYSE-listed stocks that go up on a given day, expressed as a percentage of the total volume of all stocks that rose or fell on that day. On a day when rising stocks' volume is the same as declining stocks' volume, for example, this ratio would be exactly 50%.

The central bank's action, which drops the federal funds rate target down to 2.25% from 3% -- its lowest level since December 2004 -- was the latest in a series of extraordinary moves carried out by the Fed in the last week against a background of turmoil and crisis.

In its official statement on the decision, the rate-setting panel said the size of the cut was enough to promote growth, but left the door open to future cuts. Wall Street had expected the Fed to cut rates by a full percentage point, which would have been the largest cut since 1982.

Fed signaled that today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. But, uncertainty about the inflation outlook has increased.
The market had expected more of a rate cut, but the reaction was not so negative.

Fed said downside risks remain, and was not upbeat about the economic outlook, saying that economic activity had weakened further, consumer spending had slowed and labor markets had softened.

"Financial markets remain under considerable stress and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters," the statement said.

At this point, many analysts thought that the three-quarters of one percent cut represented a compromise between some who pushed for a larger move and those that would go along with only a half-point move.

Bernanke said the Fed signaled in the statement that it could to cut rates at any time when it said "the FOMC will act in timely manner" to promote growth and price stability.

The Fed has slashed interest rates by a cumulative two percentage points so far this year, ranking it among the most abrupt rate-cutting sprees in the modern history of the U.S. central bank.