Bulls charge on Fed move

Stocks remain sharply higher heading toward the closing bell after the Federal Reserve cuts discount rate, but credit fears persist.

NEW YORK (CNNMoney.com) -- Stocks posted significant gains Friday afternoon but remained off session highs, as the Federal Reserve's decision to cut a little watched interest rate helped soothe ongoing credit market worries.

The Dow Jones industrial average (up 170.14 to 13,015.92, Charts) gained about 180 points, or 1.4 percent, with an hour left in the session, after soaring more than 300 points at the open.

The broader S&P 500 (up 26.89 to 1,438.16, Charts) climbed nearly 1.9 percent while the tech-fueled Nasdaq composite index (up 42.68 to 2,493.75, Charts) rose about 1.8 percent.

"A sense of calm has come over investors, supported by the actions of the Fed," said Art Hogan, chief market strategist at Jefferies & Co.

Fed cuts discount rate

"Just knowing that the Fed is ready to assist is reassuring," Hogan said. Going forward, however, "we'll have to wait and see how that market reacts to the next piece of negative news," he added referring to ongoing troubles with risky U.S. mortgages and the credit market.

"Volatility is going to be the norm for a while."

All three major gauges soared out of the gate on news that the Fed cut the discount rate, which the central bank charges qualified lenders - mainly banks - for temporary loans, by half a point to 5.75 percent, taking Wall Street by surprise.

The move, while largely symbolic, was an attempt by the central bank to "promote the restoration of orderly conditions in financial markets," the Fed said in a statement.

While the Fed did not cut its more closely watched Fed funds rate, the action did soothe nervous investors who have been gripped by uncertainty about how hard the subprime mortgage and credit market problems would hit the broader economy.

The move provided a big lift to the financial sector. Shares of Wall Street banks Goldman Sachs (up $3.78 to $173.63, Charts, Fortune 500) and J.P. Morgan Chase (up $1.92 to $47.39, Charts, Fortune 500) climbed 2 percent and 4 percent respectively, while the AMEX Securities Broker/Dealer index (up $7.67 to $220.94, Charts) gained nearly 4 percent.

Even the troubled mortgage lender Countrywide Financial (up $2.07 to $21.02, Charts, Fortune 500) rebounded nicely from Thursday's losses on the news, climbing more than 10 percent.

Wall Street had been bracing for another bumpy session Friday, just a day after the Dow and the other major gauges fell enough during the session to be down 10 percent from the highs hit just a month earlier, a sign of a market correction.

But stocks made a stunning recovery. The Dow industrials, which had been down more than 300 points during the session, closed down just 15 points.

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On the corporate front, shares of organic grocer Wild Oats Markets (up $2.79 to $18.00, Charts) soared 18 percent after a bid by federal antitrust regulators to temporarily block its purchase by rival Whole Foods Market (up $2.90 to $44.07, Charts, Fortune 500) was rejected by a federal judge. But the FTC filed an appeal today on the decision.

Shares of oil majors including Exxon Mobil (up $3.25 to $83.92, Charts, Fortune 500), BP (up $1.28 to $64.28, Charts) and Chevron (up $2.59 to $83.98, Charts, Fortune 500) all rose more than 2 percent on higher crude prices, which were supported by the Fed's move and the growing strength of Hurricane Dean.

Light, sweet crude oil rose 76 cents to $71.76 a barrel on the New York Mercantile Exchange.

Early Friday morning, Midwest Express (up $0.83 to $15.53, Charts) accepted a raised $17-a-share offer from a group led by private equity firm TPG Capital and Northwest Airlines (up $0.01 to $15.99, Charts, Fortune 500), ending the hostile bid for the company by rival AirTran Holdings.

Dow component Hewlett-Packard (up $0.98 to $47.03, Charts, Fortune 500) reported better-than-expected earnings and issued a stronger-than-forecast outlook late Thursday, sending its shares about 2 percent higher.

Of the 30 stocks in the Dow, 23 rose and seven fell.

Market breadth was positive. Winners beat losers on the New York Stock Exchange by 6 to 1 on volume of 1.8 billion shares. Advancers topped decliners by 3 to 1 on volume of 2.1 billion shares.

In economic news, consumer sentiment fell more than expected in August, according to a survey published Friday by the University of Michigan.

Short-term Treasury prices and the 10-year note were modestly higher with the yield on the benchmark note at 4.68, up from 4.67 percent late Thursday. Bond prices and yields move in opposite directions.

Overseas, European markets finished sharply higher after the Fed discount rate cut. But Asian markets tumbled Friday, with Japan's Nikkei index skidding 5 percent, posting its worst day since the Sept. 11 attacks.

The dollar eased versus the euro and the yen.

COMEX gold for December jumped $8.80 to $666.80 an ounce