Stocks Climb On Fed Discount Rate Cut

NEW YORK (Reuters) - Stocks surged on Friday, with all three major indexes topping 2 percent, after the Federal Reserve unexpectedly cut the discount rate by half a percentage point to 5.75 percent in a move to keep credit flowing and calm jittery markets.

Bank stocks, which have borne the brunt of recent credit market turmoil, were some of the biggest gainers. Bank of America Corp. rose 2.3 percent to $51.01 and Citigroup Inc. added 2.5 percent to $48.74.

The Fed cut the rate that it charges member banks for loans, explaining downside risks to growth have increased "appreciably." The action could lower the cost of capital for banks and help counteract the growing reluctance among lenders to make loans.

The federal funds rate, the central bank's main monetary policy mechanism, was left unchanged at 5.25 percent.

"I think (the rally) is to be expected given the surprise nature of the move, even though it is only the discount rate," said Sam Rahman, portfolio manager at Baring Asset Management Inc. in Boston. "How we close is more important than how we open."