Fed's Nifty Fifty Fuels Wall Street

Updated from 2:44 p.m. EDT

The Fed slashed interest rates Tuesday, sending stocks sharply higher.

The central bank knocked 50 basis points off its closely watched fed funds target, citing increased economic uncertainty tied to the worldwide credit crunch. Economists were widely expecting a 25-basis-point cut.

"Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally," the policy-making Federal Open Market Committee said Tuesday afternoon in its statement. "Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time."

The Dow Jones Industrial Average soared 335.97 points, or 2.51%, to 13,739.39. The S&P 500 jumped 43.13 points, or 2.92%, to 1519.78, and the Nasdaq Composite added 70 points, or 2.71%, to 2651.66.

Some observers said the Fed's decisive action suggests Fed Chairman Ben Bernanke is eager to preempt any damage to the economy while giving the central bank flexibility to fight future fires.

"This is one and done," said T.J. Marta, fixed income strategist at RBC Capital Markets. "They said there is no predominant policy concern going forward. So now depending on how the data plays out, they can do as they please."