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Stocks soar after half-point rate cut          Send a link to a friend

[September 19, 2007]  NEW YORK (AP) -- A jubilant Wall Street barreled higher Wednesday after the Federal Reserve cut its benchmark interest rate by a larger-than-expected half a percentage point. The Dow Jones industrial average surged more than 160 points after the Fed announced its move.

Although some investors hoped for a large rate cut, most were betting on a smaller quarter percentage cut in the federal funds rate. The Fed responded to the spreading impact of credit market problems on the rest of the economy, saying, "the tightening of credit conditions has the potential to intensify the housing (market) correction and to restrain economic growth more generally."

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The Fed cut the benchmark rate to 4.75 percent after keeping it unchanged for more than a year. It has not lowered rates since 2003.

The central bank's decision and the wording of its accompanying economic assessment gratified a market that plunged during August amid fears that credit market problems, spawned by a continuum of mortgage defaults, would send the economy toward recession.

There was no direct signal in the Fed's statement that it would make further rate cuts. It said "some inflation risks remain" and that it will keep monitoring inflation developments. Still, it did not call inflation its "predominant policy concern" as it did after holding rates steady in early August.

"What it says to me is you had a major shift in the last couple of months from a Fed that was very concerned about inflation to one that is concerned about the health of the financial markets, the availability of liquidity," said Jerry Webman, chief economist at Oppenheimer Funds Inc.

The Dow was up 178.19, or 1.33 percent, at 13,581.61, after being up more than 200 points after the Fed announcement. The pullback was to be expected in the normal ebb and flow of trading.

The Standard & Poor's 500 index rose 23.47, or 1.59 percent, to 1,500.12, while the Nasdaq composite index gained 40.34, or 1.56 percent, to 2,622.00.

Bonds extended their declines after the announcement as investors pulled their money out of safe haven Treasurys and shifted it into stocks. The yield on the benchmark 10-year Treasury note rose to 4.52 percent from 4.47 percent late Monday. Bond prices move opposite their yields.

[Associated Press; by Madlen Read]

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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