Dow Adds 233.30 on Discount Rate Cut

BY

Stocks Rebound After Federal Reserve Lowers Rate It Charges Banks for Loans; Dow Adds
233.30

Stocks barreled higher Friday after the Federal Reserve did what Wall Street was clamoring for
and cut its key discount rate a half percentage point. The move quelled investors' credit worries at least for the time being and sent the Dow Jones industrials up about 233.30 points.

The Fed -- which had resisted lowering rates despite weeks of market volatility, and instead
added nearly $120 billion in liquidity into the banking system -- cut its discount rate to 5.75
percent from 6.25 percent. The central bank acknowledged that the stock market turbulence
that has pulled the Dow down by hundreds of points a day was posing a risk to economic
growth.

"People were kind of baiting the Fed into doing something, and finally they did," said Philip Dow, managing director of equity trading at RBC Dain Rauscher. "The playground monitor finally
showed up, and it showed someone cares and someone is bringing rationality into the market."

But the central bank made no mention of lowering its target for the federal funds rate, which
has stood at 5.25 percent for more than a year. The fed funds rate determines the rates that
banks charge each other, while the discount rate only covers loans the Fed makes to banks.
Many strategists believe the market won't settle down until the Fed lowers the fed funds rate
target, considered a more significant benchmark.

If the market doesn't get that rate cut, Friday's gains may not stick, especially since it's likely there will be plenty more news in the coming days and weeks of further troubles in the lending
industry. Any mention of problems at subprime lenders or funds that invested in mortgages has sent stocks skidding over the past few weeks, and so have worries that tighter credit will
stanch the flood of takeovers, which sent Wall Street to new highs earlier this year.

"Today's move, while helpful psychologically, didn't really alter the stresses on the system," said Hugh Whelan, managing director at Hartford Investment Management Co. "If you're a leveraged financial institution, a leveraged individual, a leveraged hedge fund, on Monday when you walk
in, you're still facing the same stresses you faced today and yesterday."

Still, the Fed made it clear this wasn't the only step it would take if the volatility continued. In
its statement, the Fed said it "is prepared to act as needed."

The Dow surged 233.30, or 1.82 percent, to 13,079.08.

BC1410

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