Already pumping up solid gains thanks to some positive guidance from

Intel

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this morning, the stock market exploded on news that the

Federal Reserve cut interest rates.

In a surprise move, the Fed cut the

fed funds rate, the interest rate at which banks lend to each other overnight, by 50 basis-points to 4.5%, shortly before 11 a.m. ET. For the second time this year, the central bank took the unusual step of cutting interest rates between regularly scheduled meetings, in response to the ongoing economic slowdown.

Headed into the final half-hour of the trading session, the

Dow Jones Industrial Average rocketed 400 points, or 3.9%, to 10617.65, while the tech-heavy

Nasdaq Composite Index soared 174 points, or 9.0%, to 2097.40, which if it holds, would be the Comp's third-largest percentage gain of all time. Both indices were moving near their highs for the session on very heavy volume.

In its statement today, the Fed acknowledged some improvement in the economy since its most recent meeting in March. But it said "capital investment has continued to soften and the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook, seems poised to dampen capital spending going forward."

Since the beginning of this year, the Fed has cut the fed funds rate four times and a total of two hundred basis points. In addition to cutting the

federal funds rate today, the central bank cut the discount rate, or the rate at which banks can borrow from the Fed's discount window, by 50 basis points to 4%.

"Investors have come to conclude that the economy is poised to rebound," said Tony Crescenzi, bond market strategist at

Miller Tabak

. "The Fed is trying to tap into that momentum." Investor sentiment, as reflected by the stock market, has improved over the past week and a half. As for the timing of the cut, Crescenzi said that it's easier for the central bank to reinforce a positive spirit than to engender one.

In the hours before the cut, Intel's earnings report fueled market sentiment. Yesterday evening, the semiconductor bellwether spilled the bad news about its first-quarter: Earnings fell 64% from year-ago levels and sales dropped 16% from the comparable period last year. But it offered an optimistic outlook, sayings its PC-related businesses have bottomed and it expects revenue to decline at a slower pace in the second quarter and maybe even grow.

As investors have gotten used to companies saying they have little visibility about their future earnings prospects, these were especially welcome words. Intel was lately higher by 21% to $31.53, while the

Philadelphia Stock Exchange Semiconductor Index

was roaring ahead by 14.8%.

But given concerns about corporate fundamentals, some Wall Street experts thought today's gains were overstated. "The numbers Intel came up with were revised sharply downward," said Ned Collins, executive vice president of U.S. stocks at

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Daiwa Securities

. "And they gave no guarantee about the third and fourth quarter." In light of that news, Collins said, the chipmaker's rally was exaggerated.

More proof that the earnings outlook is still murky came from computer maker

Hewlett-Packard

(HWP)

, which warned that its earnings would fall substantially short of expectations this morning. It also said it will cut jobs. Today's rate cut, however, helped investors brush off the bad news. The stock was rallying 13% to $33.08.

Over the past few months, the market has gotten used to aggressive rallies followed by vicious selloffs. On Jan.3, the Nasdaq rallied 14% after the Fed's intermeeting cut, only to fall 26% to 1923, where it stood at the close of regular trading yesterday. "One would hope that we could take the time to consolidate a base," added Collins, "but that doesn't happen these days."

Economically sensitive stocks rallied fast and furiously in response to the move. The

Philadelphia Stock Exchange/KBW Bank Index

was lately 4.0% higher, with components such as

Citigroup

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Bank of America

(BAC) - Get Bank of America Corp Report

jumping.

TheStreet.com's

Dan Bernstein took a look at the

financial sector's response to the Fed cut.

Following the Fed's announcement, investors rotated out of some of the safer sectors on the Street. Shares of drug stocks, as tracked by the

American Stock Exchange Pharmaceutical Index

were falling 1.8%.