"People were kind of baiting the Fed into doing something, and finally they did," said Philip Dow, managing director of equity trading at RBC Dain Rauscher. "The playground monitor finally showed up, and it showed someone cares and someone is bringing rationality into the market."

But the central bank made no mention of lowering its target for the federal funds rate, which has stood at 5.25 percent for more than a year. The fed funds rate determines the rates that banks charge each other, while the discount rate only covers loans the Fed makes to banks. Many strategists believe the market won't settle down until the Fed lowers the fed funds rate target, considered a more significant benchmark.

If the market doesn't get that rate cut, Friday's gains may not stick, especially since it's likely there will be plenty more news in the coming days and weeks of further troubles in the lending industry. Any mention of problems at subprime lenders or funds that invested in mortgages has sent stocks skidding over the past few weeks, and so have worries that tighter credit will stanch the flood of takeovers, which sent Wall Street to new highs earlier this year.

"Today's move, while helpful psychologically, didn't really alter the stresses on the system," said Hugh Whelan, managing director at Hartford Investment Management Co. "If you're a leveraged financial institution, a leveraged individual, a leveraged hedge fund, on Monday when you walk in, you're still facing the same stresses you faced today and yesterday."

Still, the Fed made it clear this wasn't the only step it would take if the volatility continued. In its statement, the Fed said it "is prepared to act as needed."

The Dow surged 233.30, or 1.82 percent, to 13,079.08.

The blue chip index stayed in positive territory the whole day, though trading was still volatile. The Dow rose more than 320 points in early trading, gave up more than half those gains, and then gained steam once more.

A series of triple-digit losses over the past couple of weeks has gnawed a 6 percent dent in the Dow since it closed at a record 14,000.41 on July 19. The index, despite Friday's robust gains, finished down than 1 percent for the week; the result of the heavy selling that preceded the Fed's move.

The Standard & Poor's 500 index rose 34.67, or 2.46 percent, to 1,445.94, and the Nasdaq composite index rose 53.96, or 2.20 percent, to 2,505.03.

Bonds slipped as stocks rose, with the yield on the benchmark 10-year Treasury note rising to 4.68 percent from 4.66 percent late Thursday.

Traders who bet on how the Fed might alter rates expect the central bank will lower the benchmark fed funds rate at its next meeting on Sept. 18. Some investors are hoping for a cut in that benchmark rate even sooner.

"If the cut in the discount rate succeeds in restoring confidence, then perhaps there is no need for the Fed to cut rates at the Sept. 18 meeting," said John Lonski, chief economist of Moody's Investor Service. He added, though, that the key line in the Fed's statement Friday was its willingness to take more steps to prevent market volatility from harming the economy.

"That means the Fed is prepared to make a rate cut if stability doesn't come," Lonski said.