Dow jumps on hopes of rate cut

NEW YORK – Stocks rebounded sharply Wednesday as investors, growing more optimistic about chances for an interest rate cut, sought bargains after the previous session’s huge tumble. The Dow Jones industrials gained almost 250 points.

Many investors believe the Federal Reserve will cut interest rates at its next meeting on Sept. 18 or even sooner. The possibility of a rate cut has given Wall Street some hope that the stock market will recover from its summer volatility, and that right now, it’s a good strategy to buy while the buying is cheap.

News that Fed Chairman Ben Bernanke said in a letter to Sen. Charles Schumer, D-N.Y., that Fed policymakers are “prepared to act as needed” if the market’s turbulence hurts the economy helped pad the market’s gain.

The Fed, although it has not yet indicated that it will indeed lower the benchmark fed funds rate, has been adding cash to the banking system in an attempt to keep the credit markets liquid. The Federal Reserve Bank of New York said Wednesday it would inject $5.25 billion through a one-day repurchase agreement, where it buys that amount in collateral from dealers who then deposit the money into commercial banks.

Wall Street was also enthusiastic about signs of corporate muscle. A jump in oil prices fed a rally in energy company stocks, and positive news from technology companies including Seagate Technology gave that sector a boost. Meanwhile, Altria Group Inc. spun off its Philip Morris International cigarette business.

Stock investors kept an eye on the credit markets for signs of loosening. Though the safest assets, Treasurys, are not seeing the same frantic buying they saw a couple weeks ago, assets with a bit more risk, like commercial paper, are having some trouble attracting buyers.

“Everyone’s waiting for the dust to settle there,” said Steven Goldman, chief market strategist at Weeden & Co. “We’re on a little bit better footing, but we’re in a healing process that takes time.” He added that he regards a Fed rate cut as “mandatory.”

The Dow rose 247.44, or 1.90 percent, to 13,289.29, near its highs of the session. The blue chip index tumbled 280 points on Tuesday amid pessimism about the Fed’s intentions.

Broader stock indicators also jumped. The Standard & Poor’s 500 index added 31.40, or 2.19 percent, to 1,463.76, while the Nasdaq composite index gained 62.52, or 2.50 percent, to 2,563.16.