US STOCKS-Wall Street leaps on Fed cut, bank gains

NEW YORK, March 18 (Reuters) - Wall Street leaped to its biggest one-day gain in more than five years on Tuesday as a rate cut by the U.S. Federal Reserve and surprisingly solid results from two top investment banks lifted spirits darkened by Bear Stearns' sudden downfall.

The Fed fulfilled expectations by cutting its benchmark rate to the lowest since February 2005. Stocks rallied, with the S&P and the Nasdaq closing up more than 4 percent, even though policy makers opted for a slightly less aggressive rate reduction than some on Wall Street were expecting.

Recently battered financial stocks led the way as the S&P index of financial shares achieved its best day in eight years, climbing 8.5 percent.

Goldman Sachs and Lehman Brothers posted lower quarterly earnings, but both topped forecasts. The results provided evidence that bank profits were intact despite the escalating credit crisis, which forced the proposed fire-sale deal for Bear Stearns over the weekend.

Lehman shares soared 46.4 percent to $46.49 and Goldman rose 16.3 percent to $175.59.

The top 25 gainers on the New York Stock Exchange included some of the biggest losers in the subprime mortgage meltdown. Mortgage companies Fannie Mae and Freddie Mac, home builder Hovnanian Enterprises and the home lender most associated with the credit crunch, Countrywide Financial Corp, all ranked near the top of the NYSE's leading gainers' list.

"There's been tremendous panic. People throwing the baby out with the bath water, preparing for a Category 5 hurricane, and that presents a buying opportunity," said Chip Hanlon, president of Delta Global Advisors, Inc., in Huntington Beach, California.

"The economy will likely recover later this year, based on what the Fed is doing. The market is rallying today. It got so oversold that I won't be surprised to see it rally further."

The Dow Jones industrial average .DJI climbed 420.41 points, or 3.51 percent, to end at 12,392.66. The Standard & Poor's 500 Index .SPX rose 54.14 points, or 4.24 percent, to 1,330.74. The broad-based average had its biggest rise since October 2002. he Nasdaq Composite Index soared 91.25 points, or 4.19 percent, to 2,268.26.

The Nasdaq surged to its best one-day percentage advance since March 2003.

Shares of Fannie Mae rose 27.1 percent to $28.22 and Freddie Mac climbed 26.2 percent to $26.02 -- their biggest one day gains in two decades -- on expectations the government will allow the housing finance companies to expand their roles in the ailing U.S. housing market.

Hovnanian rose 18.4 percent to $10.17 and Countrywide surged 24.9 percent to $5.11.

On Sunday night, the Fed made an emergency quarter-point cut to its discount rate to 3.25 percent and expanded lending to include brokerages and investment banks, the first such move since the Great Depression of nearly 80 years ago.

Trading was heavy on the New York Stock Exchange, with about 1.95 billion shares changing hands, above last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 2.36 billion shares traded, above last year's daily average of 2.17 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 7 to 1 and by more than 3 to 1 on Nasdaq. (Additional reporting by Ellis Mnyandu; Editing by Richard Satran)