Stocks soar into the weekend

Wall Street rallies, with the Dow spiking 230 points as Fed discount-rate cut soothes credit market worries. Yet investor fears persist.

NEW YORK (CNNMoney.com) -- Stocks surged Friday after the central bank cut its mostly symbolic discount rate, easing worries about the credit and mortgage markets that have roiled Wall Street for weeks.

The Dow Jones industrial average (up 233.30 to 13,079.08, Charts) jumped 233 points, or 1.8 percent, after soaring more than 300 points earlier in the session. The tech-fueled Nasdaq composite (up 53.96 to 2,505.03, Charts) index rose 2.2 percent. Both the Dow and Nasdaq snapped 6-session losing streaks.

The broader S&P 500 (up 34.67 to 1,445.94, Charts) index climbed nearly 2.5 percent, clawing back into positive territory for the year.

The gains were broad based, with 25 out of 30 Dow components rising. Banks, energy, steel, retailers, telecom and technology led the charge.

However, early-week losses left the markets lower for the week, with the Dow down 1.7 percent, the S&P 500 down nearly 1 percent and the Nasdaq down 1.9 percent.

Fed cuts discount rate

Stocks got pummeled in the first three days of the week and looked like they were heading for another battering Thursday. But investors staged an impressive comeback, with the Dow bouncing back from a 342-point loss to end that session down by just 15 points. That recovery extended to Friday's session, thanks to the move by the Fed.

Although it did not cut the more widely-watched fed funds rate, which affects consumer loans, the central bank did cut the discount rate, which impacts banks and other lenders. The Fed cut the discount rate by a half-percentage point to 5.75 percent, taking Wall Street by surprise and raising bets that it will cut the fed funds rate at the Sept. 18 policy meeting.

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

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.

It did the trick, at least on Friday, cooling investor jitters after a period of great uncertainty about how the subprime mortgage and credit market problems will hit the broader economy.

Although the problems in those markets remain, "just knowing that the Fed is ready to assist is reassuring," Hogan said.

Whether that translates to further stock gains remains to be seen.

"We'll have to wait and see how the market reacts to the next piece of negative news," Hogan said, referring to ongoing troubles with risky U.S. mortgages and the credit market.

Next week is light on market-moving economic news, highlighted by the July leading economic indicators report, due Monday, and July readings on durable goods orders and new home sales, expected Friday.

On the corporate front, earnings are due from home improvement retailer Lowe's (up $0.06 to $26.87, Charts, Fortune 500) on Monday and Staples (down $0.02 to $23.25, Charts, Fortune 500), Target (up $1.43 to $61.18, Charts, Fortune 500) and other retailers later in the week.

Investors will also be looking to see if the Fed infuses more money into the U.S. banking system, as it has been doing lately.