Fed Cuts Rates

NEW YORK, Dec 16 (Reuters) - U.S. stocks rallied on Tuesday after the Federal Reserve rewrote its playbook by slashing borrowing costs to a record low, even zero, and pledging more unconventional steps to fight the deepest recession in generations.
Banks led the charge higher, spurred both by the Fed's move to cap its target lending rate at a quarter percentage point and by a quarterly loss from Wall Street icon Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) that was not as gruesome as many feared. Goldman's stock gained more than 14 percent, outshining an 11 percent advance in the S&P 500's financial index .GSPF.

Stocks were up modestly all day on optimism that the Fed, at its last meeting of 2008, might take dramatic measures to combat the credit crisis and global economic slowdown. But the rally caught fire right after the central bank released its statement in mid-afternoon, pushing the benchmark Standard & Poor's 500 index to its highest closing level since Nov. 10 and driving each of the major U.S. stock indexes to their best one-day performance for the month.

"The rate cut was definitely more than a lot of people were expecting and that's really helping the market here. But the big takeaway here is Bernanke's going back out into the market and trying to loosen things up in credit," said Jocelynn Drake, market analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

"We've got a Fed that's willing to really go the distance for the market right now."

The Dow Jones industrial average .DJI rose 359.61 points, or 4.20 percent, to 8,924.14. The Standard & Poor's 500 Index .SPX jumped 44.61 points, or 5.14 percent, to 913.18. The Nasdaq Composite Index .IXICclimbed 81.55 points, or 5.41 percent, to 1,589.89.

Tuesday's advance marked the largest point and percentage gain for the Dow since Nov. 24 and pushed the blue-chip Dow average up 1.1 percent for the month to date.