Financials surge ahead of expected Fed rate cut
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By Justin GrantNEW YORK (Reuters) - Stocks rallied on Tuesday ahead of an expected decision by the Federal Reserve to cut a benchmark interest rate as much as 1 percentage point.Financial shares rose sharply as stronger-than-expected results from Goldman Sachs Group Inc and Lehman Brothers Holdings Inc provided relief to investors battered by losses from mortgages and a global credit crunch.The Standard & Poor's financial index <.GSPF> soared 6.4 percent. Shares of Goldman Sachs climbed 13.7 percent to $171.75 while Lehman Brothers surged 37.4 percent to $43.60.Major U.S. housing finance sources Fannie Mae and Freddie Mac rose on expectations regulators will ease a restriction on capital, letting them increase lending to the weak housing sector.Shares of Fannie Mae soared 20.2 percent to $26.70 and Freddie Mac rose 19.6 percent to $24.66.The rebound in financials followed a sell-off on Monday after JPMorgan Chase & Co's deal to buy struggling brokerage Bear Stearns at a rock-bottom price."We sold off in anticipation of all the news. There was all this anticipation ... that we were going to have a big bankruptcy," said Anthony Conroy, head trader at BNY Brokerage, a unit of Bank of New York."I think the Fed has done a tremendous job to restore confidence in the system."The Dow Jones industrial average <.DJI> climbed 301.63 points, or 2.52 percent, to 12,273.88. The Standard & Poor's 500 Index <.SPX> rose 38.41 points, or 3.01 percent, to 1,315.01. The Nasdaq Composite Index <.IXIC> increased 60.82 points, or 2.79 percent, to 2,237.83.The Fed's policy committee was expected to make its announcement on interest rates around 2:15 p.m..Interest-rate futures show investors almost fully pricing in a one percentage-point cut in 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 lending to include brokerages and investment banks, the first such move since the Great Depression of nearly 80 years ago.Yahoo Inc shares rose 5.7 percent to $27.31 on the Nasdaq after the Internet search company affirmed its outlook for the first quarter and full year.ExxonMobil climbed 2.1 percent to $87.60 as oil prices rose on expectations that a Fed rate cut will further weaken the dollar.Data before the opening on U.S. housing starts was stronger than expected, adding further support to stocks.(Editing by James Dalgleish)
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