Wall Street's reaction: Thank you, Ben

NEW YORK — A jubilant Wall Street barreled higher today after the Federal Reserve cut its benchmark interest rate by a larger-than-expected half percentage point.

The Dow Jones industrial average soared 336.05, or 2.51 percent, to 13,739.47 — its biggest one-day point jump in nearly five years. The last time it rose more than 300 points in one session was Oct. 14, 2002, when it gained 378 points. The blue-chip index is now only about 1.9 percent below its record close of 14,000.41 reached in mid-July.

Microsoft joined the market surge, rising 20 cents to $28.93. But Boeing — the other Northwest company that's a Dow component — bucked the trend. Its stock fell 17 cents to $98.47 after a Banc of America Securities analyst cut his stock-price projection for Boeing on concern it may be late delivering its first 787 jet.

The broader market posted even bigger gains than the Dow did. The Standard & Poor's 500 index rose 43.13, or 2.92 percent, to 1,519.78. The Nasdaq composite index gained 70.00, or 2.71 percent, to 2,651.66.

Small-cap stocks, badly beaten during the market's summer turmoil, shot higher. The Russell 2000 index surged 30.82, or 3.97 percent, to 806.63.

The Fed cut the benchmark fed funds rate to 4.75 percent after keeping it unchanged for more than a year.

Although some investors had hoped for a half-point rate cut, most were betting on a smaller, quarter-point cut in the federal funds target rate.

The Fed, led by Chairman Ben Bernanke, responded to the spreading impact of credit-market problems on the rest of the economy by saying, "the tightening of credit conditions has the potential to intensify the housing (market) correction and to restrain economic growth more generally."

The central bank's decision and the wording of its accompanying economic assessment gratified a market that plunged during August amid fears that credit market tightness, spawned by a continuum of mortgage defaults and delinquencies, would send the economy toward recession.

There was no direct signal in the Fed's statement that it would make further rate cuts. It said "some inflation risks remain" and that it will keep monitoring inflation developments. Still, it did not call inflation its "predominant policy concern" as it did after holding rates steady in early August.

"What it says to me is you had a major shift in the last couple of months from a Fed that was very concerned about inflation to one that is concerned about the health of the financial markets, the availability of liquidity," said Jerry Webman, chief economist at Oppenheimer Funds.

Though Wall Street's reaction to the rate cut was clearly positive, some analysts said the Fed's reaction to the summer's market tumult may eventually lead investors to worry more about how bad the current credit climate is, and how vulnerable the U.S. economy might be.

"The market's initial response is 'Thank you, Ben,' " Webman said. "But we also know that when people stop and look at this, people might say, 'Could this house of cards be shaky, more than even we thought it was?' "

The dollar tumbled to a new all-time low against the euro after the rate cut, because lower rates make a currency a less attractive investment. Meanwhile, crude-oil futures catapulted further into record terrain, rising 94 cents to $81.51 a barrel, and gold prices rallied to a multidecade high.

These factors could add up to trouble for the consumer — though the Fed tends to measure inflation with volatile food and energy prices stripped out, these high commodity costs trickle down to average Americans and can damp their spending power.

"If they were concerned about inflation before, they should be more concerned now," said Alexander Paris, economist and market analyst for Chicago-based Barrington Research.

However, the mood remained cheery on Wall Street, especially because the central bank's decision capped an already strong day that saw economic and corporate data come in better than expected.

Lehman Brothers Holdings, the nation's fourth-largest investment bank, posted a smaller-than-anticipated 3 percent decline in its third-quarter profit compared with a year ago. Lehman is the first of the major U.S. brokerages to report earnings from the most recent, tumultuous quarter. Other banks are due to report later in the week. Lehman rose $5.87, or 10 percent, to $64.49.

The rest of the financial sector, battered over the summer due to credit worries, also soared.

Retailers also advanced sharply, after Best Buy, the country's largest consumer electronics retailer, said its second-quarter profit rose 8.7 percent, more than analysts expected. Best Buy rose $2.92, or 6.6 percent, to $47.46.

Meanwhile, the Labor Department's August producer price index was also more favorable than the market predicted. Wholesale prices fell 1.4 percent last month, the biggest decline in 10 months, led by a 6.6 percent drop in energy costs. Core inflation, which eliminates food and energy prices, rose by a mild 0.2 percent, as expected.