By DPA
New York : US stocks made their largest gains in five years Tuesday after the central bank cut its benchmark interest rate and two leading investment firms posted earnings that assuaged fears about the financial sector.
The Federal Reserve cut its benchmark interest rate by 0.75 points to 2.25 percent, in the latest of a series of dramatic attempts to boost the sagging US economy and temper volatility in global financial markets. The US central bank has now lowered the federal funds rate by a total of two percentage points since the beginning of the year.
The 8-2 decision followed emergency action Sunday that saw the Fed cut its discount lending rate to banks, approve the sale of ailing investment bank Bear Stearns and open up a new lending programme aimed at investment banks. Tuesday, it again lowered the discount rate to banks by 0.75 percent to 2.5 percent.
The blue chip Dow Jones Industrial Average soared 420.41 points, or 3.51 percent, to 12,392.66. The broader Standard & Poor’s 500 Index climbed 54.14 points, or 4.24 percent, to 1,330.74. The technology heavy Nasdaq Composite Index gained 91.25 points, or 4.19 percent, to 2,268.26.
Financial stocks led the advance, as earnings reports from Lehman Brothers Holdings Inc and Goldman Sachs Group Inc reassured investors that the sector was not headed for a meltdown after Bear Stearns was sold to JPMorgan Chase Sunday.
Goldman Sachs earned $1.51 billion, or $3.23 per share, in the quarter ending in February, down from $3.2 billion, or $6.67, in the year-earlier period. Lehman Brothers said its earnings slipped to $489 million, or 81 cents a share, in the quarter from $1.15 billion, or $1.96, a year earlier.
“Getting some reinforcement that the wheels weren’t falling off of all the brokers was a great thing, because everyone was fixated on the troubles at Bear,” E. William Stone of PNC Wealth Management told Bloomberg financial news.
“It had gotten so negative that people were thinking the entire financial system might be collapsing, so anything short of that was seen as a positive.”
The US currency gained against the euro to 63.98 euro cents from 63.58 euro cents Monday. The dollar also picked up value against the Japanese currency to 99.79 yen from 97.47 yen Monday.
Gold added 1.70 dollars to 1,004.30 dollars per fine ounce.