(Updates with market action after Fed rate cut)
By Richard Satran
NEW YORK, Jan 30 (Reuters) - Wall Street stocks climbed
sharply on Wednesday after the U.S. Federal Reserve made an
aggressive half-percentage-point cut in key interest rates in a
move to bolster a U.S. economy that staggered toward recession
at year end.
The dollar fell sharply, and key commodities recovered from
early declines. U.S. Treasury bonds cut earlier losses.
Before the Fed decision, traders were evenly split over
whether the central bank would cut benchmark U.S. rates by half
a percentage point or a quarter point in its two-day policy
meeting.
In trading just after the cut, the Dow Jones industrial
average <> was up 78.04 points, or 0.63 percent, at
12,558.34. The Standard & Poor's 500 Index <.SPX> was up 9.02
points, or 0.66 percent, at 1,371.32. The Nasdaq Composite
Index <> was up 15.08 points, or 0.64 percent, at
2,373.14.
The Fed set up expectations of an aggressive move after it
made a 3/4-point rate cut in an emergency action last week.
Skepticism grew over another sharp cut on scattered signs of
U.S. economic recovery and concern that the Fed's emergency
measure may have been a flawed response to short-term market
declines sparked by a rogue trader at French bank Societe
Generale <SOGN,PA.>.
Rate cut hopes rose again early on Wednesday, though, on a
report that U.S. economic growth last year dropped to a
five-year low of 2.2 percent, with a fourth-quarter gain of
just 0.6 percent, half the expected rate.
Earlier, European stocks and the dollar were hit as UBS
<UBSN.VX> unveiled $4 billion in new write-downs, stirring
fears of a deepening credit crisis. UBS was among the
hardest-hit of the banks around the world that have
collectively suffered more than $100 billion in losses from the
crisis originating from defaults in U.S. subprime mortgages.
The big Swiss bank's charges reminded investors that the
Fed action can do nothing to help results in the earnings
season starting on Wall Street.
"The fourth-quarter reporting season will be a real acid
test for the banks," said Franz Wenzel, strategist at AXA
Investment Managers in Paris. "Most of the banks will try to
put all the write-downs in their 2007 results as they want to
clean the balance sheet going forward."
Some investors were betting that the bottom has already
been reached in a recession that probably began last year. The
view gained support early in the day as private data provider
ADP reported 130,000 new U.S. private-sector jobs were created
in January, three times forecast. In the prior session, a surge
in durable goods orders for December surprised markets.
Investors were less concerned over the impact of higher
prices, which the Fed must worry over as it stimulates the
economy. Commodities drifted lower on the surprising decline in
fourth-quarter GDP growth.
"The Fed understands that it needs to make hay while the
sun shines by pumping as much liquidity into the economy now,
while it still can, before the public's inflation expectations
catch up with reality," said John Kosar, president of Asbury
Research in Chicago.
Gold on the New York futures market <GCJ8> jumped $4.20 to
$935 after the rate cut, after falling as low as $926.
In the U.S. Treasury market, the benchmark 10-year note
<US10YT=RR> was trading 14/32 lower in price for a yield of
3.73 percent from 3.68 percent late on Tuesday, while the
two-year note <US2YT=RR>_was flat in price for a yield of 2.30
percent.
(Reporting by Gertrude Chavez-Dreyfuss, Ellis Mnyandu and
Pedro Nicolaci da Costa; Writing by Richard Satran; Editing by
Jonathan Oatis)
