The tech-heavy Nasdaq composite index gained 41.43 points to 1,835.08; it was flat before the Fed's announcement. CNET's technology indexes were mostly up.
The Dow Jones industrial average gained 150.09, or 1.6 percent, to 9,591.12. An analyst downgrade for Walt Disney shares put pressure on the broader markets. The company's shares fell 67 cents, or nearly 4 percent, to $18.49 after Goldman Sachs downgraded shares to "market perform" from "market outperform," citing an anticipated decline in 2002 earnings.
The Federal Reserve on Tuesday cut interest rates in another bid to help jump-start the weak U.S. economy.
The federal funds rate was lowered 50 basis points to 2 percent--a level not seen since the early 1960s. The funds rate is the interest that banks can charge each other for overnight loans.
The Fed lowered the discount rate, the interest rate it charges banks to borrow, by 50 basis points to 1.5 percent.
The Fed also said in its comments that the long-term productivity outlook remains strong. Merrill Lynch analyst Gerald Cohen took that as a sign that the Fed will continue to cut rates.
"We think the Fed will continue cutting rates, although less aggressively. We are expecting another 25 (basis point) cut at the December (Federal Reserve Open Market Committee) meeting and another cut in January, with the Fed funds rate ending up at 1.5 percent."
On the technology front, Cisco Systems shares gained 57 cents to $18.47. The company on Monday reported first-quarter earnings that beat Wall Street expectations, despite falling from last year's levels.
CNET's Networking index rose almost 3 percent.
Microsoft shares rose $1.51 to $64.78 as investors awaited news as to how the 18 state attorneys general would work out their disagreements and objections to the settlement agreement between the software giant and the Justice Department. So far nine states have refused to sign the deal.
Hewlett-Packard shares gained $2.92 to $19.81 after descendents of co-founder William Hewlett said on Tuesday that they oppose a merger with Compaq Computer. The relatives and the family trust said they would vote against the deal. Compaq shares were off 49 cents to $8.50.
BellSouth shares were up 18 cents to $38.80 after the local telephone company said it expects revenue growth in 2002 to slow by 5 percent to 7 percent due to the slowing economy. The news weighed on fellow communications company Qwest Communications International, which sank 71 cents, or almost 6 percent, to $11.79.
Among other actively traded shares, Intel rose $1.25 to $28.21, Oracle rose 26 cents to $15.22 and Sun Microsystems was up 33 cents to $12.39.
AOL Time Warner gained $1.66 to $35.15, Yahoo rose $1.00 to $12.99 and Amazon.com was up 6 cents to $7.05.
Staff and Reuters contributed to this report.