Rate-Cut Hopes Ignite Rally

Updated from 4:17 p.m. EDT

Stocks in the U.S. were solidly higher Wednesday following a two-session selloff, as traders bid up equities amid hopes for a rate reduction.

The Dow Jones Industrial Average jumped 247.44 points, or 1.9%, to 13,289.29. The S&P 500 added 31.40 points, or 2.19%, to 1463.76, and the Nasdaq was better by 62.52 points, or 2.5%, at 2563.16.

Chipmakers, retailers, computer hardware stocks and precious-metals names were among the leaders of what was a broad-based rally.

The mood improved as investors learned that Federal Reserve Chairman Ben Bernanke had sent a letter to New York Sen. Chuck Schumer saying that the central bank would "act as needed" if the economy appeared to be imperiled by the troubles in the financial markets.

The change in direction comes a day after the minutes from the last Fed meeting failed to convince investors that an ease in interest rates was being considered.

However, the bulls interpreted the Bernanke correspondence as a sign the fed funds target rate could come down. Many market participants are looking for a cut at or before the next Fed meeting Sept. 18.

The minutes indicated that members of the FOMC judged that risks to the credit market and economic growth were on the rise, saying that "conditions in markets for subprime mortgages and related instruments, including segments of the asset-backed commercial paper market, deteriorated sharply toward the end of the period."

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