U.S. Stocks Rally on Goldman, Lehman Earnings, Fed Rate Cut

March 18 (Bloomberg) -- U.S. stocks rallied the most in five years as earnings from Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. allayed concern investment banks are collapsing and the Federal Reserve cut its benchmark rate.

Lehman, the fourth-biggest securities firm, had its steepest advance ever and helped lead financial stocks to their biggest gain since 2000. Goldman, the largest securities firm, rallied the most in nine years. All 10 industry groups in the Standard & Poor's 500 Index added at least 1 percent after the Fed cut the target rate for overnight lending by 0.75 percentage point, helping the market erase most of a two-day tumble that wiped out $767 billion following Bear Stearns Cos.'s collapse.

The S&P 500 rose 54.13 points, or 4.2 percent, to 1,330.73. The Dow Jones Industrial Average gained 420.41, or 3.5 percent, to 12,392.66, its fourth-biggest point gain ever. The Nasdaq Composite Index increased 91.25, or 4.2 percent, to 2,268.26. Sixteen stocks rose for every one that fell on the New York Stock Exchange. Treasuries dropped and the dollar surged the most in almost four years against the yen.

``The run on the investment banks would appear to be over,'' said Doug Peta, a New York-based market strategist at J&W Seligman & Co., which oversees about $19 billion. ``It seems certain we are going to finish the week with the four investment banks we started with, and we couldn't be sure of that Monday morning. The Fed decision is actually a bit of a sideshow.''

Financial shares in the S&P 500 gained 8.5 percent as a group, the top advance among 10 industries, after the better- than-forecast earnings at Lehman and Goldman assuaged concern that Wall Street firms were overvalued.

Lehman, Goldman

The Fed reduced its benchmark rate to the lowest level in more than three years. The central bank has cut the rate six times and slashed the discount rate for direct loans to banks eight times since the middle of August, when the collapse of subprime mortgages started to infect markets around the world.