* Stocks zoom after Fed's surprise interest rate cut
* Dollar falls on rate cut; euro above $1.40, yen rises
* U.S. government bond yields touch new historic loss
* Oil prices slip as economic troubles dim demand outlook
(Recasts throughout with Fed's interest rate decision, market
reaction)
By Herbert Lash
NEW YORK, Dec 16 (Reuters) - U.S. stocks jumped 5 percent
while the dollar tumbled and U.S. government debt yields
slipped to fresh historic lows after the Federal Reserve
surprised investors and cut interest rates to a range that
includes zero percent.
The Fed's bigger-than-expected move established a target
range for its key U.S. overnight rate at zero to 0.25 percent,
compared with a previous target of 1 percent, as it moved
aggressively to halt deflation -- a dangerous downward spiral
of prices.
The Fed also said it would employ "all available tools" to
dispel the deepest recession in decades, a move equity markets
cheered as investors said it showed Fed Chairman Ben Bernanke
will do what it takes to get the U.S. economy rolling again.
The stock rally pushed the benchmark S&P 500 index to the
highest close since Nov. 10.
"The big take away here is Bernanke's going back out into
the market and trying to loosen things up in the credit arena,"
said Jocelynn Drake, market analyst at Schaeffer's Investment
Research in Cincinnati.
"We've got a Fed that's willing to really go the distance
for the market right now," she said.
The price on 30-year Treasury bonds rose sharply, pushing
its yield down to record lows below 2.89 percent, while the
benchmark 10-year Treasury note's <US10YT=RR> yield fell to
below 2.44 percent. Both rates were last seen in the 1950s.
Rates on two-year <US2YT=RR> debt, meanwhile, fell below
0.64 percent. The price and yield of bonds move inversely.
"The Fed has been sending a message it will throw
everything it has at deflation," said Haag Sherman, co-founder
and managing director of Salient Partners in Houston.
The euro jumped more than 2 percent and traded above $1.40
<EUR=>, while versus the yen, the dollar also extended declines
and last traded 1.5 percent down at 89.25 <JPY=>.
Earlier, a record drop in U.S. consumer prices spurred
deflation worries and pushed the dollar and oil prices lower.
Oil prices slipped as lingering worries about shrinking
global energy demand offset expectations that the Organization
of Petroleum Exporting Countries will agree to cut supply when
members meet on Wednesday in Algeria.
Government reports again showed the U.S. economy losing
ground, as consumer prices for November plummeted a record 1.7
percent and groundbreaking on new homes fell to a record low.
Earlier, U.S. and European stocks had gained after a
smaller-than-feared loss from Goldman Sachs boosted the
hard-hit financial sector.
In Europe, BNP Paribas <BNPP.PA> and Axa <AXAF.PA> added
about 5 percent each, while Dow components JPMorgan <JPM.N> and
Citigroup <C.N> rose 13 percent and 11 percent, respectively.
Goldman Sachs posted its first quarterly loss since going
public nine years ago, but some investors had expected even
deeper losses and its shares rose 14.4 percent on Wall Street.
"Everyone had been expecting this to be the proverbial
kitchen sink quarter for Goldman -- they were going to throw as
much of the nonsense as they could possibly find into this
quarter," said Tim Smalls, head of U.S. stock trading at
brokerage firm Execution LLC in Greenwich, Connecticut.
The Fed rate cut pushed U.S. equities up dramatically.
The Dow Jones industrial average <> closed up 359.61
points, or 4.20 percent, at 8,924.14. The Standard & Poor's 500
Index <.SPX> jumped 44.61 points, or 5.14 percent, to 913.18.
The Nasdaq Composite Index <> climbed 81.55 points, or
5.41 percent, to 1,589.89.
The FTSEurofirst 300 <> index of top European shares
closed up 0.9 percent at 834.84 points.
Defensive stocks were some of the best European gainers,
with Sanofi-Aventis <SASY.PA> up 3.3 percent, the No. 2 boost
to the FTSEurofirst index, and GlaxoSmithKline <GSK.L> up 1.7
percent.
Electricite de France <EDF.PA> was the top-weighted gainer,
up 3.1 percent after reports said it is close to buying half of
the nuclear assets of Constellation Energy Group <CEG.N> for
$4.5 billion. CEG gained 2 percent.
"The investment universe is still being driven by the
economic news from the U.S.," said Henk Potts, strategist at
Barclays Stockbrokers in London. "Data continues to disappoint.
Markets are hoping for action from the incoming president,
Barack Obama."
Many members of OPEC are calling for output cuts of up to 2
million barrels per day, but the potential for deep cuts was
not enough to lift crude prices.
"The market may be calling OPEC's bluff," said Stephen
Schork, editor at the Schork Report in Philadelphia.
January crude <CLF9> fell 91 cents to settle at $43.60 a
barrel in New York.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> edged up 0.6 percent, but Japan's Nikkei
average <> fell 1.1 percent as the yen's strength against
the dollar hurting shares of exporters.
(Reporting by Leah Schnurr, Richard Leong, Wanfeng Zhou in New
York and Brian Gorman and David Sheppard in London; Writing by
Herbert Lash, Editing by Chizu Nomiyama)
