Aplus.net Blog

As if in direct reaction to our earlier story about the grim state of the American economy, Wall Street responded today by posting its biggest gain in more than five years.

The index jumped a whopping 416.66 points, its largest one-day jump since July 29, 2002, according to the New York Times’ Michael M. Grynbaum.

On Tuesday, the Fed announced it would offer up to $200 billion in ultra-safe Treasury securities to the nation’s banks, including several major brokerage firms, in exchange for a variety of collateral options — including the very mortgage-backed securities that have caused the recent financial crisis.

That means banks will be able to unload some of those soured assets, potentially freeing up money to keep the nation’s economic bloodstream flowing. It was the central banking move that many investors had been waiting for.

“For the first time, the Fed now is doing the relevant work,” said David Kovacs, an investment strategist at Turner Investment Partners in Berywn, Pa. “This is a move by the Fed that has teeth to it.”

Investors had complained that the Fed’s recent round of interest rate cuts — its traditional tool to address problems in the economy — had been largely ineffective in easing troubles in the credit and equity markets.

But moments after the Fed announced its new programs, stocks jumped, with the Dow gaining more than 200 points in the first half-hour of trading. The major indexes fell back slightly during midday but surged again in the afternoon, ending near their highs for the day.