The Nasdaq composite rocketed up 156 points, or 8 percent, to 2,079.64, while the Dow Jones industrial average stormed up 399 points, or 4 percent, to finish at 10,615.64.
"I'm ecstatic. It recognizes that the economy needs some further help," Robert Armknecht, money manager at the $2 billion Galaxy Equity Growth Fund, told Reuters. "It gets some liquidity back in the system, and it's reassuring to the public, not just to investors."
Federal Reserve Chairman Alan Greenspan shocked financial markets with his second cut to interest rates this year. The Fed has cut interest rates four times this year, or a total of two full percentage points. The last time the Fed changed rates between scheduled meetings of the Federal Open Market Committee was Jan. 3.
The Fed said Wednesday's move was made in reaction to the decline in capital investment and the "persistent erosion in current and expected profitability in combination with rising uncertainty about the business outlook."
The cut brings the federal funds rate down to 4.5 percent. The more symbolic discount rate on Fed loans to banks will fall to 4 percent.
Intel rallied up $5.21 to $31.25 after the chipmaker said its business has stabilized. Analysts were split between the bulls and a loud minority of bears who warned that the worst is far from over.
Advanced Micro Devices gained $4.85 to $27.85, and IBM moved up $6.80 to $106.50 even as Wall Street debated whether Big Blue would cut its 2001 sales targets. Both companies are scheduled to report their earnings after the bell.
Microsoft rose $3.95 to $65.43. Oracle picked up $1.70 to $17.92, and Sun Microsystems closed up $2.54 to $18.58.
Among widely held PC stocks, Dell Computer rose $2.12 to $28.47. Gateway tacked on $1.84 to $17.30. Compaq Computer gained $2.17 to $20.50, and Apple Computer, also due to report earnings Wednesday, finished up $2.34 to $22.74.
Hewlett-Packard charged up $2.65 to $31.90 even though it warned that its second-quarter earnings and sales will fall short of estimates.
America Online Time Warner shot up $5.10 to $49 after topping estimates in its latest quarter. Yahoo nudged up $1.31 to $18.62, while Amazon.com and eBay closed up $1.80 and $2.70 a share, respectively.
Shares of RF Micro Devices rose $5.79 to $24.13 as investors cheered the company's positive outlook. The company, which makes products used in cell phones, saw earnings slip in the fourth quarter but said it expects a return to profitability in the second half of the year.
Staff and Reuters contributed to this report.