Bull Run: Dow Surges 4% on Fed's Steep Rate Cut

Updated from 4:08 p.m. EST

Wall Street rallied sharply Tuesday after the Federal Reserve, in an unexpected move, established a range for its federal fund rate of 0% to 0.25%. The move was more aggressive than the half-point cut, to 0.5%, that analysts had expected.

The Dow Jones Industrial Average surged 359.61 points, or 4.2%, to 8924.14, and the S&P 500 gained 44.61 points, or 5.1%, to 913.18. The Nasdaq climbed 81.55 points, or 5.4%, to 1589.89.

In its announcement Tuesday afternoon, the Federal Open Market Committee said that as previously announced the Fed will purchase "large quantities" of agency debt and mortgage-backed securities. The central bank is also evaluating the potential benefit of buying longer-term securities.

"Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further," said the FOMC.

Going forward, the Fed said its policy will focus on supporting the functioning of financial markets and stimulating the economy through open market operations and other measures that sustain the size of its balance sheet.

"Clearly, it surprised the market by lowering the rate more than expected, but they're also really throwing all of their arsenal in," says Jack Ablin, chief investment officer at Harris Private Bank, of the Fed's move. "It hasn't dug its heels in with the single dimension of rate rising and cutting -- it's moved past that.

"It's good news," he says, "the Fed understands the situation and has the flexibility to do a variety of things to combat it."