US stocks up after rates kept on hold

US stocks ended another tumultuous day with a big gain, partly recovering from its worst sell-off in years after the Federal Reserve said it was keeping interest rates unchanged at 2%.

The Fed eased fears of a worsening financial crisis even as the market waited to learn the fate of troubled insurer American International Group.

The Fed signalled that while there were growing strains in the financial markets, it expected its earlier rate cuts and efforts to boost liquidity in the banking sector and help the US economy.

The Dow rose 141.51, or 1.30%, to close at 11,059.02.

The Standard & Poor’s 500 index rose 20.90, or 1.75%, to 1,213.60, and the Nasdaq composite index rose 27.99, or 1.28%, to 2,207.90.

The fact that the Fed did not lower rates was a sign that it did not believe the US economy needed that type of stimulus. It reiterated that it believed its moves to inject more liquidity into the banking system to help struggling financial institutions would help them, and in turn the economy overall.

“This was the right thing to do,” said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles. “I just don’t think the Fed should be responding to the financial market crisis at this stage.”

He contended that other moves, like broadening the type of collateral the Fed accepted from banks and adding money to the banking system were more effective at addressing credit troubles.

On Monday, the Dow fell 4.4%, the S&P gave up 4.7% and the Nasdaq fell 3.6%.

Bond prices fell sharply today as investors turned away from the safety of government debt.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.52% from 3.41% on Monday.