Wall St jumps as financials rebound

NEW YORK (Reuters) - Stocks jumped on Tuesday as stronger-than-expected earnings from Goldman Sachs Group Inc's (GS.N: Quote, Profile, Research) and Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) provided some reassurance about the ailing financial sector.

All three major indexes were up close to 2 percent.

Investors also looked forward to what is expected to be a steep interest rate cut from the Federal Reserve's policy-setting committee around 2:15 p.m. on Tuesday.

Goldman and Lehman shares jumped in early trading, leading a rebound in financial stocks, which tumbled on Monday after JPMorgan Chase & Co's (JPM.N: Quote, Profile, Research) deal to buy struggling brokerage Bear Stearns (BSC.N: Quote, Profile, Research) at a rock-bottom price. A broker dealer index .XBD surged 5.9 percent.

"Today's a day for good news, with Goldman and Lehman results beating estimates. Right now the focus is that these earnings weren't as bad as they could have been," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois.

The Dow Jones industrial average .DJI rose 231.78 points, or 1.94 percent, to 12,204.03. The Standard & Poor's 500 Index .SPX gained 28.18 points, or 2.21 percent, to 1,304.78. The Nasdaq Composite Index .IXIC jumped 44.25 points, or 2.03 percent, to 2,221.26.

Shares of Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) rose on expectations their regulator will ease restrictions on the government-chartered companies and help them increase spending in the U.S. housing market. Fannie was up 11.8 percent at $24.86, while Freddie Mac was up 12.3 percent at $23.15.

Shares of Goldman were up 8.5 percent at $163.70 while Lehman was up 17 percent at $37.12 after reporting results that beat Wall Street estimates.

On the Nasdaq, Yahoo Inc (YHOO.O: Quote, Profile, Research) shares rose 4.7 percent to $27.07 after the Internet search company affirmed its outlook for the first quarter and full year.

Interest rate futures show investors are fully pricing in a one percentage-point cut in U.S. short-term rates, which would take the benchmark fed funds target rate down to 2 percent.

Over the weekend, the Fed made an emergency quarter-point cut to its discount rate to 3.25 percent and expanded lending to a wider range of big financial firms, in the first such move since the Great Depression of nearly 80 years ago.

Data before the opening on U.S. housing starts was stronger than expected, adding further support to the market.