Federal Reserve Chairman Ben Bernanke came to Wall Street’s rescue yesterday with a surprise intervention that sent stocks soaring.For the first time since turbulent 2001, the Fed acted between scheduled meetings to cut the discount interest rate it charges to banks.

The move - which eased investor jitters about a possible freeze on lending that could throw the economy into turmoil - sent stocks on a tear.

After seven straight down days amid concerns about a deepening credit crunch, the Dow Jones industrial average jumped as much as 300 points in early morning trading. The surge came after a roller-coaster session on Thursday, which saw the Dow make a dramatic late-day recovery from a more than 340-point drop.

Yesterday, the blue chip index finished up 233.30, or 1.82 percent, to 13,079.08.

The Standard & Poor’s 500 Stock Index gained 34.67, or 2.46 percent, to 1,445.94 - its biggest rally in four years. The technology-company-laden Nasdaq rose 53.96, or 2.20 percent, to 2,505.03.

“Fear has been gripping the market for the last few weeks,” said Jim Paulsen, market strategist with Wells Capital Management.

“Now it’s greed. The gains started [Thursday] afternoon because of rumors the Fed would ease rates. People were worried they would miss out on a rally if the Fed eased.”

The Fed has injected as much as $120 billion into the banking system in recent days to lubricate the lending markets and allay fears that a growing crisis in the home-lending market could zap economic growth.

But when the market turmoil failed to abate, the Fed yesterday took the added step of cutting the discount rate for short-term loans to 5.75 percent from 6.25 percent.

In its statement, the Fed said it “is prepared to act as needed,” raising hopes that if the turbulence continues it also could cut the much more influential federal funds rate, which is charged on overnight loans between banks.

“It’s certainly a relief to see the Federal Reserve take action and, most important, it’s good to see the stock market have a positive reaction to it and hold on to the gains,” said Hugh Johnson, chairman of Johnson Illington Advisors.

But the stock market’s recent turbulence is probably far from over, market strategists cautioned.

“The real test is next week,” said Johnson. “There will be more bad news on the housing front and we’ll hear about more hedge funds that are having difficulties.

“The question is how investors will react to the bad news,” he added. “Will the stock market hang on to its gains or will it give them all up again? The whole issue is investor confidence.”

Source:

http://www.nypost.com/seven/08182007/business/lending_lifeline_business_janet_whitman.htm