Fed cut helps US markets

LATEST: Recession worries pushed US stocks lower on Tuesday, but the decline was shallower than feared at first as an emergency interest rate cut by the Federal Reserve helped to ease investor fears and stabilize global markets.

Declines were fairly broad-based, with Procter & Gamble Co , the world's largest household products company, down 2.6 percent at $65.40 and Exxon Mobil, down 2.2 percent at $83.21, among the biggest falling shares in both the Dow industrials and S&P 500.

But investors bought financial stocks, which benefit from lower borrowing costs, as well as retailers. The financial sector was among the S&P 500's major gainers, while retailers led gains on the Dow.

Home builders also were in positive territory after the Fed cut interest rates by 75 basis points in an unusual decision between its regularly scheduled policy meetings. The Federal Open Market Committee is set to meet next Tuesday and Wednesday.

The US central bank's move followed two days of steep losses in Asian and European equities on worries that a deteriorating US economy would drag other regions down with it.

"We're not out of woods yet... We're still down on day...(but) clearly the Fed rate-cut move was well received by traders this morning," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles. "At least it was an attempt by the Fed to get in front of the negativity."

The Dow Jones industrial average was down 117.95 points, or 0.97 percent, at 11,981.35. The Standard & Poor's 500 Index was down 14.74 points, or 1.11 percent, at 1,310.45. The Nasdaq Composite Index was down 39.53 points, or 1.69 percent, at 2,300.49

The Dow was down almost 465 points at its session low, while the Nasdaq, within minutes of the opening bell, dropped to a level indicating it had crossed the threshold of what is considered a bear market -- a fall of 20 percent from its October closing high.

Overseas stock losses were sharp on Monday when US markets were closed for the Martin Luther King Jr. holiday, and the rout resumed on Tuesday until the Fed rate cut, which helped Latin American markets to rise and allowed the pan-European FTSEurofirst 300 index . to end up 1.9 percent.

The Fed's action took the key federal funds rate, which governs overnight lending between banks, down to 3.5 percent, its lowest level since September 2005. The Fed also lowered the discount rate it charges on direct loans to banks to 4 percent.

The S&P index of retailers .RLX rose 4.4 percent, the Dow Jones US home construction index rose .DJUSHB 3.5 percent, while the S&P financial index .GSPF advanced 1.8 percent.

The price of US oil futures dropped below $90 a barrel, weighing on Exxon Mobil and rivals ConocoPhillips, down 2.7 percent at $70.95, and Chevron, down 2.3 percent at $81.56. Oil prices, however, had risen off session lows after the Fed's rate cut spurred hopes that it will help the US economy and keep demand for oil strong.

Shares of iPod and iPhone maker Apple Inc were the biggest drag on the Nasdaq, down 2 percent at $158.30.

- Reuters