(Updated from 1:55 p.m.)

Christmas came early this year, or maybe two weeks too late. The Federal Reserve announced that it would cut the

federal funds rates by 50 basis points and the discount rate by 25 basis points. Now this is one of those rare intermeeting moves, which occur between Fed meetings.

The fact that this meeting occurred before the upcoming Jan. 30 and 31

Federal Open Market Committee meeting highlights the severity of the economic slowdown. The

Fed cited weak sales, production and lower consumer confidence for

TheStreet Recommends

reasons for the cut .

Stocks jumped after the announcement. The Dow was lately up 285 to 10,930. The

Nasdaq Composite Index was up 242 to 2534.

Markets were caught by surprise when the news hit just prior to 1:30 p.m. EST and quickly rallied the Dow from 40-point losses into a mammoth triple-digit gain. The Nasdaq, which was moping around the break-even point for much of the day, also rocketed deep into the green. Both were lately at session highs.

Most market-watchers expected the Fed to cut rates at some point, with Friday being the earliest mentioned time, because that's when the latest jobs report is released.

The last cut between Fed meetings was the fall of 1998.