U.S. Central Bank's Surprise Rate Cut Sends Dow Up 400 Points

In a move that caught markets and analysts almost completely off-guard, the Federal Reserve made a surprise half-point cut in interest rates Wednesday, citing worries that the outlook for U.S. business is getting worse.

Stocks leapt on the news. The Dow Jones industrials soared 399.10, or 3.9%, to 10,615.83, the average's third-largest daily point gain. The blue chips were up as much as 470 points before settling back before the close. The Nasdaq rose 156.22, or 8.1%, to 2,079.44, reaching the 2,000 level for the first time since March 15 and posting its fourth-best daily percentage gain.

In lowering its short-term interest rate target to 4.5%, the Fed said business investment has "continued to soften" and profits have shown a "persistent erosion." Together with a potential slowdown in consumer spending and growing weakness among U.S. trading partners, the Fed said, that threatens to keep the nation's economy "unacceptably weak."

The rare, inter-meeting cut came just a day after unexpectedly good industrial production numbers led analysts to conclude that the economy might be brightening and that a move before the Fed's May 15 meeting was out of the question.

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