Wall St soars after Fed's discount rate cut

By Kristina Cooke

NEW YORK (Reuters) - Stocks surged on Friday to end a turbulent week after the Federal Reserve cut the discount rate it charges banks in an emergency move to stabilize credit markets and keep the economy on track.

World stock markets have fallen sharply, with investors fleeing riskier assets as problems in U.S. subprime mortgage lending spread rapidly in other credit markets .

Friday's rally gave the S&P its best day in almost four-and-a-half years. Shares of banks and brokerages, beaten down in the recent turmoil, led the rally and the S&P financial index climbed 3.6 percent. JPMorgan Chase shares rose 3.4 percent and Citigroup gained 2.7 percent, pulling the sector higher.

Energy shares, led by a 4.3 percent rise in Exxon, helped fuel the rally as the Fed's surprising discount rate cut relieved some concerns about a possible economic slowdown that would crimp the demand for oil. The threat of Hurricane Dean, which is heading toward oil rigs in the Gulf of Mexico, also pushed up the price of oil.

"Stocks are up decently, indicating some of the worst fears of a liquidity crisis are being alleviated," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

"But I don't think this is the end. We'll likely see some more bouts of fear and volatility in the coming weeks."

The Dow Jones industrial average jumped 233.30 points, or 1.82 percent, to 13,079.08 -- snapping a six-day streak of losses. It was the first time the Dow had been down for six days in a row since October 2006.

The Standard & Poor's 500 Index shot up 34.67 points, or 2.46 percent, to 1,445.94. The Nasdaq Composite Index soared 53.96 points, or 2.20 percent, to 2,505.03.

The Nasdaq had its best day in a year, led higher by gains in Apple and Research in Motion.

But it was still down 1.6 percent for the week. The S&P 500 slipped 0.5 percent for the week, while the Dow's weekly loss was 1.2 percent.

For the year, the Dow is still up 4.9 percent, while the S&P is up nearly 2 percent and the Nasdaq is up 3.7 percent. This marks a turnaround for the S&P, which had given up its gains for the year during Wednesday's steep slide.

FED SLASHES THE DISCOUNT RATE

Before the U.S. stock market opened, the Fed announced it cut the discount rate by half a percentage point to 5.75 percent, explaining risks to economic growth have increased "appreciably."

The Fed's action was designed to give banks confidence that they will continue to have access to capital and help counteract lenders' growing reluctance to make loans.

But it was not the cut in the federal funds rate -- the rate at which banks borrow from each other-- that many on Wall Street had been hoping for. The central bank's main tool for managing monetary policy was left unchanged at 5.25 percent.