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Unusual emergency interest rate cut slows dive in stock prices

NEW YORK — An unusual emergency interest rate cut by the Federal Reserve gave Wall Street a partial rebound Tuesday from a precipitous early decline — and perhaps the first steps toward a long-term recovery.

The Dow Jones industrial average, down 465 points shortly after trading began, bounced around throughout the session before closing with a milder drop of 128.11, or 1.06 percent.

U.S. stocks began the day following the lead of markets abroad that had plummeted for two straight days, and also extended their own steep losses from last week. Fears of a U.S. recession — one that would spread to other economies — had investors fleeing stocks worldwide.

The Fed moved before the opening of trading, cutting its benchmark federal funds rate by 0.75 percentage point to 3.50 percent and the discount rate, the interest the Fed charges banks directly, to 4 percent. What was unusual was the reduction’s coming between regularly scheduled meetings of the central bank’s policy-making Open Markets Committee; the next gathering is in a week.

Also, the cut was widest in the target fed funds rate on records going back to 1990.

One of the market’s greatest concerns is that consumers, who normally account for two-thirds of the economy, aren’t in a position to spend the country back into solid growth.

“People are up to their eyeballs in debt, and they’re being asked to borrow more,” said Mike Schenk, senior economist for the Credit Union National Association.

“This is a cure for the wrong disease. It makes everybody feel good, but it’s not going to have any ongoing benefit,” said Daniel Alpert, managing director of Westwood Capital LLC.

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