Wall Street darts higher after rate cut from Fed, bank profits

NEW YORK -- Wall Street stormed higher Tuesday as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve's decision to cut interest rates by three-quarters of a percentage point. The Dow Jones industrial average soared 420 points, its biggest one-day point gain in more than five years.

Many investors were expecting the Fed to cut rates a full point but appeared to overcome their early disappointment, especially since a 0.75 point cut is still substantial.

In its statement accompanying the rate decision, the Fed said "recent information indicates that the outlook for economic activity has weakened further," and also that "uncertainty about the inflation outlook has increased."

"The Fed once again in the statement showed that it is ready for further action if this were needed," said Christian Menegatti, lead analyst for online economic research firm RGE Monitor. "It also showed the fact that it's still paying attention to inflation … but that it is far from being the primary concern right now. And the market knows that, and it is happy."

Quarterly results from Lehman Brothers Inc. and Goldman Sachs Group Inc. early Tuesday gave great comfort to a market fearful about investment banks weakening further due to losing bets on mortgage-backed securities. Both Lehman and Goldman posted quarterly profits Tuesday significantly lower than they were a year ago but higher than analysts predicted.

Still, while Wall Street's advance was heartening, investors were well aware that over the past six months, stocks have had many bursts higher only to give them back at the first sign of credit market or economic trouble.