Financials drive Wall St sharply higher
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By Cal MankowskiNEW YORK (Reuters) - Stocks rallied on Tuesday ahead of a decision from the Federal Reserve policy meeting expected to conclude with an interest-rate cut of as much as 1 percentage point.Fannie Mae and Freddie Mac rose on expectations that regulators will ease a restriction on capital, enabling them to increase their lending to the weak housing sector.Stronger-than-expected earnings from Goldman Sachs Group Inc's and Lehman Brothers Holdings Inc also drove the financial sector higher. .Subodh Kumar, chief investment strategist at Subodh Kumar &Associates in Toronto, said the market has been encouraged by the Fed's efforts in dealing with the crisis."Perceptions about how involved the Fed is and how successful it will be have changed for the better," he said.The Federal Reserve's policy-setting committee was expected to make its announcement around 2:15 p.m. on Tuesday.The Dow Jones industrial average <.DJI> jumped 256.53 points, or 2.14 percent, to 12,228.78 and the Standard & Poor's 500 Index <.SPX> rose 32.23 points, or 2.60 percent, to 1,309.83. The Nasdaq Composite Index <.IXIC> gained 49.37 points, or 2.27 percent, to 2,226.38.The rebound in financial shares followed a sell-off on Monday after JPMorgan Chase & Co's deal to buy struggling brokerage Bear Stearns at a rock-bottom price.Shares of Fannie Mae climbed 20.2 percent to $26.70 and Freddie Mac rose 18.6 percent to $24.45.Shares of Goldman gained 12 percent to $169.06 while Lehman shot up 33.6 percent at $42.42."The numbers that came out on Goldman Sachs and Lehman, while not great, seem to suggest that there could be light at the end of the tunnel," said Matt Kaufler, portfolio manager and analyst at Clover Capital Management in Rochester, New York.A broker dealer index <.XBD> surged 8.9 percent.On the Nasdaq, Yahoo Inc shares rose 6.8 percent to $27.60 after the Internet search company affirmed its outlook for the first quarter and full year.Interest-rate futures show investors are almost fully pricing in a one percentage-point cut in U.S. short-term rates, which would take the benchmark fed funds rate target down to 2 percent.On Sunday night, the Fed made an emergency quarter-point cut to its discount rate to 3.25 percent and expanded lendingto include brokerages and investment banks, in the first such move since the Great Depression of nearly 80 years ago.Data before the opening on U.S. housing starts was stronger than expected, adding further support to the market.(Editing by Jan Paschal)
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