Market soars on possible rate cut

NEW YORK » Wall Street barreled higher yesterday for the second day in a row, giving the Dow Jones industrial average its biggest two-day point gain in five years after a Federal Reserve official hinted that the central bank may lower interest rates again.

Investors' renewed hopes for a rate cut added to their relief that companies that made losing bets on subprime mortgages, such as Citigroup Inc. and Freddie Mac, are coming up with ways to raise cash.

Despite its spectacular advance, the Dow remains more than 6 percent below its Oct. 9 record close over 14,000, having plunged due to worries that the housing market's slump will lead to further losses for banks, and that the Fed can't keep slashing rates.

"The market's perception of whether the Fed cuts or not really changes by the day," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "We still have more data to come."

Early yesterday, Fed Vice Chairman Donald Kohn told the Council on Foreign Relations that recent financial turbulence has reversed some of the improvement seen in markets in previous weeks, and could squeeze credit for households and businesses. He said tight financial conditions may merit "offsetting" policy from the central bank.

The Fed has already reduced rates at its last two meetings, and continues to inject billions of dollars into the financial system through repurchase agreements.

The central bank will hold its final rate-setting meeting of the year Dec. 11.

Plunging oil and gold prices also lifted investors' hopes for a rate cut.

The Dow soared 331.01, or 2.55 percent, to 13,289.45, adding to the blue chip index's 215 point gain on Tuesday and giving the market's best known indicator its largest two-day point gain since Oct. 11, 2002, and largest two-day percentage gain since Nov. 21, 2002.

Yesterday's jump was also the biggest one-day percentage gain for the Dow since April 2, 2003.

The broader Standard & Poor's 500 index climbed 40.79, or 2.86 percent, to 1,469.02, logging its best two-day point gain since April 19, 2001. The Nasdaq composite index shot up 82.11, or 3.18 percent, to 2,662.91, giving the technology-dominated index its largest two-day point gain since March 4, 2002. The Russell 2000 index of smaller companies rose 26.77, or 3.60 percent, to 770.04.

Advancing issues led decliners by about 7 to 1 on the New York Stock Exchange, where volume came to 4.45 billion shares, compared with 4.17 billion traded Tuesday.

Government bonds slipped as stocks rallied. The yield on the benchmark 10-year Treasury note rose to 4.05 percent from 3.95 percent Tuesday -- and ticked up to 4.05 percent in afterhours trading.

Crude oil posted its own two-day milestone yesterday, falling $3.80 to settle at $90.62 a barrel on the New York Mercantile Exchange after dropping $3.28 Tuesday. The $7 two-day plunge was the second-largest since the Nymex introduced a futures contract 24 years ago.

The dollar fell against the euro and pound, but rose against the yen.