US stocks staged their biggest rally in more than five years on Tuesday as the Fed cut interest rates by 75bp to 2.25% and the discount lending rate by 75bp to 2.5%. The cut was smaller than markets had expected but investors overcame initial disappointment, extending an earlier rally in shares that was helped by better-than-expected earnings reports from Goldman Sachs and Lehman Brothers. In its statement, the Fed said the economic growth outlook had “weakened further” and “downside risks remain”, leaving the door open to further cuts. But in a rare move, two FOMC members dissented in favour of a 50bp cut, indicating resistance at the Fed to even a 75bp move. Asian stocks on Wednesday also rallied strongly, reports Bloomberg.
