Stocks remained at their highs Wednesday afternoon after the Federal Reserve unexpectedly cut its bellwether federal funds rate half a percentage point.

The Fed's action sparked a frantic flurry of buying that sent major market gauges to their highest levels in more than a month and helped put the Nasdaq market on track to chalk up its third-biggest percentage gain in its 30-year history.

The Dow Jones Industrials soared 399.10 points, or 3.91 percent, to 10,615.83. The tech-heavy Nasdaq also zoomed up 156.22 points, or 8.12 percent, to 2,079.44

The broad Standard & Poor's 500 Index jumped 46.38 points, or 3.89 percent, to 1,238.19, officially exiting bear market territory, defined as a drop of 20 percent or more from a market's peak.

Volume was also brisk on the New York Stock Exchange, with about 1.6 billion shares traded.

The Fed's move, which came at 10:54 a.m. ET,  further spurred investors, who had already gotten encouragement from better-than-expected quarterly profit reports from marquee names, including Intel Corp. The Nasdaq had already jumped over the 2,000-point level before the rate cut announcement.

Rate cuts increase consumer spending and lower borrowing costs. This helps boost corporate profits, which have been sagging.

``I'm ecstatic. It recognizes that the economy needs some further help,'' said Robert Armknecht, money manager at the $2-billion Galaxy Equity Growth Fund. ``It gets some liquidity back in the system and it's reassuring to the public, not just to investors.'' 

Upbeat earnings news came from AOL Time Warner Inc., the world's largest Internet and media company, which bucked the recent industry trend of gloomy results by reporting higher first-quarter earnings early on Wednesday.

Intel reported after Tuesday's close a steep drop in first-quarter net income, but the results were slightly better than expected and the world's No. 1 computer chip maker offered upbeat comments about the second half. Texas Instruments Inc. , the world's No. 1 maker of computer chips for mobile phones, said late on Tuesday first-quarter net income fell about 36 percent, but beat estimates. Intel, Texas Instruments and AOL Time Warner were all trading sharply higher.

``There are some good things happening in the market ... It certainly is in that bottoming process,'' said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum. ''You are getting some key numbers beating Street estimates and that's a good sign.'' 

The Fed, noting the risks for the economy remain tilted to further weakness, lowered the bellwether federal funds rate, charged for overnight lending between banks, by 50 basis points to 4.50 percent. The Fed also cut the more symbolic discount rate, charged for emergency Federal Reserve loans to banks, by 50 basis points to 4.0 percent. That brings the total reduction in the funds rate so far this year to 200 basis points. 

A key forecasting gauge for the U.S. economy fell in March but the decline matched Wall Street expectations. The Conference Board said on Wednesday morning that the U.S. leading economic indicators fell 0.3 percent to 108.5 in March vs. a drop of 0.2 percent in February. 

``The key here is investor and business confidence, and the only way the Fed can turn that around is by springing a surprise on the market,'' said Sung Won Sohn, chief economist at Wells Fargo. ``That's exactly what we got today.'' 

The bank surprised financial markets with a 50-basis-point rate cut on Jan. 3, outside of a regular Fed meeting — which sparked a monster rally at the time. The central bank then cut rates two more times at scheduled meetings on Jan. 31 and March 20. 

The Fed, which meets next in May, said this rate cut was based in part on softening capital investment, erosion of current and future profits and rising uncertainty in business outlook. It also cited a ``reduction in equity wealth on consumption'' and risk of slower growth abroad. 

Some fund managers were cautious about the sudden easing, saying it may signal the economy is in really bad shape. ''There must be some other shoe waiting to drop I'd say,'' said Richard Babson, president of Babson-United Investment Advisors, which manages $1.8 billion. ``Maybe they are concerned about the darkening prospects for corporate balance sheets or debt. There may also be some greater exposure than already thought to Japan.'' 

Investors, however, were jumping into the market on Wednesday to snatch up beaten-down stocks, Babson noted earlier, after the latest tech results. ``People are looking ahead trying to time the bottom of the market and afraid they will be left behind,'' he said. Nasdaq hit two-year lows recently as corporate profit warnings rained down.