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Dow rallies after Fed statement, up 429 points

In this Aug. 8. 2011 phoWall Street sign hangs near New York Stock Exchange New York. Stocks tanked agaTuesday Aig.

In this Aug. 8. 2011 photo, a Wall Street sign hangs near the New York Stock Exchange, in New York. Stocks tanked again Tuesday, Aig. 9, as many global markets entered official bear market territory after one of the worst days on Wall Street since the collapse of Lehman Brothers in 2008. (AP Photo/Jin Lee)

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Updated: September 11, 2011 12:40AM

Wall Street likes nothing more than a promise of cheap money, and it got one gift-wrapped Tuesday from Ben Bernanke.

Stocks soared after the Bernanke-led Federal Reserve declared it will hold its key interest rate near zero for almost two more years. The pledge was seen as a back-door stimulus for an economy plagued by worries about government and private debt and by scant job creation.

The Dow Jones industrial average rose 429.92 points, 4 percent, to close at 11,239.77. Most of the advance occurred in the session’s final hour. The index gained back most of what it gave up in Monday’s frenetic selloff, a reaction to the U.S. losing its AAA credit rating.

But the market was skittish, at first declining on news of the Fed’s recognition that the economy indeed is in bad shape. But then stocks rocketed higher on the bullish implications near-zero interest rates carry for corporate profits. Companies also get an incentive to borrow for expansion.

“Markets are going to do what they would have done if the Fed went out and bought securities,” said Bob Doll, chief equity strategist at BlackRock. “This will push investors … back into equities.”

The worries remain, however, with the Dow still down 12 percent since late July. Europe’s financial problems could rock stocks at any time and analysts said volatility will remain the rule.

The CBOE Volatility Index, the market’s “fear gauge,” fell 13 percent Tuesday to close at 35.06 after spiking 50 percent higher on Monday. Called the VIX, it measures expected volatility in the Standard & Poor’s 500 index.

The Dow’s rally was its 10th largest point gain. A day after falling 634.76 points, it recorded a 624-point trading range.

The S&P 500 gained 53.07, 4.7 percent, to 1,172.53 and the Nasdaq composite index rose 124.83, 5.3 percent, to 2,482.52.

Concern about a slower economy continued to push oil prices lower. The benchmark crude contract settled down $2.01 to $79.30 in New York trading.

Gold kept its appeal as a refuge. The busiest gold futures contract gained 1.7 percent to $1,743 an ounce after earlier hitting a record $1,782.50.

Contributing: AP

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