NEW YORK (AP) -- Wall Street stormed higher Tuesday as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve's decision to cut interest rates by three-quarters of a percentage point.
After the Fed's decision was announced, the Dow Jones industrial average first gave back a big chunk of a nearly 300-point gain, then shot higher, trading up 319.21, or 2.67 percent, at 12,291.46 an hour later.
Many investors were expecting the Fed to cut rates a full point, but appeared to overcome their early disappointment, especially since a 0.75 percentage point cut was still substantial.
In its statement accompanying the rate decision, the Fed said "recent information indicates that the outlook for economic activity has weakened further," but also that "uncertainty about the inflation outlook has increased."
"The Fed once again in the statement showed that it is ready for further action if this were needed," said Christian Menegatti, the lead analyst for RGE Monitor, an online economic research firm. "It also showed the fact that it's still paying attention to inflation ... but that it is far from being the primary concern right now. And the market knows that, and it is happy."
Quarterly results from Lehman Brothers Inc. and Goldman Sachs Group Inc. early Tuesday had given some solace to a market fearful about investment banks weakening further - and hurting the rest of the economy - after losing bets on mortgage-backed securities. After Sunday's news that the stricken Bear Stearns Cos. was being bought by JPMorgan Chase & Co. at a bargain price of $2 a share, both Lehman and Goldman posted quarterly profits early Tuesday that were significantly lower than they were a year ago, but higher than analysts predicted.
"The overwhelming news this morning was the Lehman and Goldman Sachs earnings," said Jim Herrick, director of equity trading at Baird & Co.
Broader stock indicators also were sharply higher after giving back some gains. The Standard & Poor's 500 index was up 43.06, or 3.37 percent, at 1,319.66, and the Nasdaq composite index was up 70.96, or 3.26 percent, at 2,247.97.