US stocks jumped to session highs on Tuesday after the Federal Reserve slashed a key US interest rate by three-quarters of a percentage point, less than many financial market participants had expected. The Fed's action takes the bellwether federal funds rate down to 2.25 percent, the lowest since February 2005.
Interest-rate futures before the decision showed investors had almost fully priced in a 1-percentage-point cut in short-term rates. The S&P index of financial shares was up nearly 7 percent within 45 minutes of the decision, after initially pulling back to a gain of 4.6 percent from its pre-Fed advance of 6.4 percent.
Stronger than-expected results from Goldman Sachs and Lehman Brothers drove up stock prices earlier in the day, along with expectations of a steep rate cut from the Fed. The Dow Jones industrial average rose 328.09 points, or 2.74 percent, to 12,300.34. The Standard & Poor's 500 Index gained 40.08 points, or 3.15 percent, to 1,316.68. The Nasdaq Composite Index climbed 71.10 points, or 3.27 percent, to 2,248.08.