New York, March 18: US Financial stocks roared back today as a pair of better-than-expected earnings reports from Wall Street’s biggest firms spurred a broad rally ahead of the 75 basis point interest rate cut from the Federal Reserve. With many investors expecting the steepest cut in a generation, Monday’s apprehension gave way to an optimistic bounce for some of the market’s most beaten-up stocks.

The Standard & Poor’s 500-stock index was up 3 per cent, vanquishing its Monday losses. The Dow Jones industrials picked up 295 points, and the Nasdaq composite index was up 2.8 per cent. The resurgence in shares of financial firms, which took a severe beating on Monday after the near-collapse of Bear Stearns, was striking. Lehman Brothers, whose share price plummeted 19 percent on Monday as rumours swirled that the bank was facing liquidity problems, gained back all its losses after reporting a 57 per cent decline in net income for the first quarter. That figure beat expectations and restored some confidence in the company; its stock rose 37 per cent to $43.63 a share.

Goldman Sachs reported a 53 per cent earnings decline, also better than Wall Street estimates, and its shares rose 14 per cent, to $171.87 a share. MF Global, the commodities brokerage firm that plummeted in value on Monday, gained back 31 per cent to $7.93 a share. And Bear Stearns, which was valued at $2 a share in the weekend takeover by JPMorgan Chase, was trading at $6.76, a stunning 40 percent bounce, as traders bet the company may be able to negotiate a better deal in the near future.

Wall Street’s focus remained squarely on today’s Fed meeting, and some investors held off on trades until after the central bank announced its 75 bps rate cut decision. Futures markets had predicted a full percentage point cut to the federal funds rate, though a small minority had begun to price in a three-quarter point cut. The federal funds rate affects mortgage rates, car loans, and other consumer transactions, and while a lower interest rate can stimulate growth in the economy, it can also lead to higher prices and a devalued dollar.

But Tuesday morning was marked by cheerfulness across the board. Confidence appeared to be returning to the credit markets, the centre of the turmoil that has played havoc with investors for months. Spreads on lending between banks and Fannie Mae mortgage bonds narrowed, a sign that investors are more certain that loans will be repaid.

The yields on Treasury notes, some of which reached 50-year lows on Monday, climbed back on near- and short-term bonds. And commodities like oil and corn recovered from a sell-off a day earlier. Crude oil gained 2 per cent to $106 a barrel, and gold rose to $1,008 a troy ounce.

The euro gained ground in anticipation of the interest rate cut, which devalues the dollar. The European currency was trading at $1.5778 around midday on Tuesday.

The bounce on Wall Street followed strong sessions in foreign stock markets, which recovered on the strength of banks and financial services firms. The Nikkei 225 in Tokyo finished up 1.5 per cent and Hong Kong’s benchmark Hang Seng index gained 1.4 per cent. In Europe, indexes in London, Paris and Frankfurt all closed more than 3 per cent higher, a full recovery from Monday’s declines.