This is from Reuters and Yahoo!:

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Wednesday January 3 2:31 PM ET
Market Jumps After Surprise Fed Rate Cut

By Knut Engelmann

WASHINGTON (Reuters) - The U.S. Federal Reserve on Wednesday cut a key short-term interest rate by a half percentage point and signaled it was prepared to cut borrowing costs further if needed to prevent the world's top economy from turning sour, electrifying global financial markets.

The surprising move, which came four weeks ahead of the year's first scheduled meeting of the rate-setting Federal Open Market Committee, takes the crucial fed funds overnight bank lending rate to 6 percent. The cut, decided in a conference call among FOMC members, was the first half-percentage point easing in that rate since mid-1992.

To underline its determination to keep the economy from hitting a brick wall, the Fed also said its Board of Governors had decided to cut the more symbolic discount rate on Fed loans to banks by a quarter percentage point to 5.75 percent.

The powerful central bank added that it was prepared to cut that rate further to 5.5 percent if necessary.

Financial markets surged within seconds of the Fed announcement, and advisers to U.S. President-elect George W. Bush -- who has expressed mounting concern over an economic slowdown as he prepares to take over the presidency Jan. 20 -- welcomed the decision as a much-needed dose of Viagra.

It was the first time the Fed cut rates between regular FOMC meetings since the autumn of 1998, when a global economic crisis threatened to seize up world financial markets.

Shortly after the Fed's announcement, the Dow Jones industrial average was up more than 3 percent, while the technology-heavy Nasdaq composite index surged more than 11 percent. Both indices later gave back some of their gains.

The U.S. dollar rose against major currencies.

[** note from hobie: and, of course, this held or drove down the cost of gold, again. ]

The Reasoning

``These actions were taken in light of further weakening of sales and production, and in the context of lower consumer confidence, tight conditions in some segments of financial markets, and high energy prices sapping household and business purchasing power,'' the central bank said in a statement.

``Moreover, inflation pressures remain contained. Nonetheless, to date there is little evidence to suggest that longer-term advances in technology and associated gains in productivity are abating,'' it added.

The Fed said that even with Wednesday's moves, it still saw the risks in the economy weighted toward economic weakness -- clearly signaling that more rate cuts may come soon, possibly at the FOMC meeting scheduled for Jan. 30-31.

``They'll do more if they need to to ensure that the economy doesn't go into a tailspin,'' said Dana Johnson, senior managing director and head of research at Banc One Capital Markets Inc. in Chicago. ``They're absolutely committed to doing everything they know how to do to prevent a hard landing.''

Never Wrong

The Fed's move came as Bush was meeting with more than 30 business executives and chief executives about the state of the economy in a hotel in Austin, Texas.

Suddenly Lawrence Lindsey, Bush's chief economic adviser and a former Fed governor himself, burst into an adjoining room where the media were being held to pick up the news from a television set. Asked how he felt, Lindsey beamed and said: ''Great. The Fed is always right.''

In recent weeks, Bush and his team have repeatedly warned the U.S. economy is at risk of a dramatic slowdown, arguing this bolsters the case for an aggressive tax cut that has been a centerpiece of Bush's election campaign.

Wednesday's rate cut came hot on the heels of a slew of data which many analysts say have raised the odds of a sharp economic downturn that could hurt the rest of the world.

While a majority of economists is as yet unwilling to talk about a looming recession -- officially defined as two successive quarters of negative growth -- almost all forecasters have been scurrying to slash their U.S. growth forecasts dramatically.

A chilling report on manufacturing activity released on Tuesday added to the doom and gloom among many in U.S. financial markets. The National Association of Purchasing Manufacturers said manufacturing activity in December slumped to its lowest level in almost a decade.

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